Suppose a monopolistically competitive firm is producing at the profit-maximizing output level and receiving a price that is sufficient to cover only its average variable cost.If the price falls further the firm should suspend its operations.

Question

Quizplus · Accepted Answer

If the price falls further and is not sufficient to cover even the average variable cost, the firm should shut down operations in the short run. This means the firm should suspend production temporarily but will remain in the industry, as in the long run, it may be able to adjust its inputs and costs to become profitable again.

Suppose a Monopolistically Competitive Firm Is Producing at the Profit-Maximizing