Suppose a perfectly competitive firm faces the following short-run cost and revenue conditions: ATC = $12; AVC = $10; MC = $15; MR = $13. The firm should

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In a perfectly competitive market, the firm should produce at the point where MC = MR. In this case, MC > MR, which means that the firm is producing more than the profit-maximizing level. Therefore, it should decrease output. Additionally, we can see that the AVC of $10 is less than the price of $13, so the firm is covering its variable costs in the short-run. However, the ATC of $12 is greater than the price, which means that the firm is making losses in the short-run. By reducing output, the firm can reduce its losses.

Suppose a Perfectly Competitive Firm Faces the Following Short-Run Cost