Suppose Tim's Cowboy boot factory produces in a perfectly competitive market. Suppose the average total cost of cowboy boots is $65, the average variable cost of cowboy boots is $60, and the price of cowboy boots is $62. If the firm is producing the level of output where marginal cost equals price, then in the short run the firm

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In the short run, the firm should continue to produce since the price of cowboy boots ($62) is greater than the average variable cost of production ($60), meaning that total revenue is covering the variable costs of production. Although the price is less than the average total cost of production ($65), the firm would still incur a loss if they were to shut down in the short run. The firm cannot increase profit by increasing output as the price of the product is less than the average total cost, indicating that the firm is not operating at maximum efficiency.

Suppose Tim's Cowboy Boot Factory Produces in a Perfectly Competitive