A profit-maximizing firm in a competitive market produces small rubber balls.When the market price for small rubber balls falls below the minimum of its average total cost but still lies above the minimum of average variable cost,what happens to the firm

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When the market price falls below the minimum of average total cost but still above the minimum of average variable cost, the firm will incur losses but will still continue to produce as long as it can cover its variable costs. Shutting down would result in even greater losses (losing both fixed and variable costs), so the firm will produce at a loss in the short run. However, if the market price remains below the average total cost in the long run, the firm may decide to exit the market. Accounting profits refer to total revenue minus explicit costs, while economic profits take into account both explicit and implicit costs. Since the firm is experiencing losses, it cannot earn economic profits and can only earn accounting profits if it manages to cover its explicit costs.

A Profit-Maximizing Firm in a Competitive Market Produces Small Rubber