Exhibit 12-7 The figure shows the price,marginal cost,and average cost curves of a perfectly competitive firm. Refer to Exhibit 12-7.The firm depicted above should:

Question

Exhibit 12-7 The figure shows the price,marginal cost,and average cost curves of a perfectly competitive firm.  Refer to Exhibit 12-7.The firm depicted above should:

Quizplus · Accepted Answer

The firm depicted should keep operating in the short run in order to minimize losses, since price exceeds average variable cost. In the short run, a perfectly competitive firm should continue to operate as long as the price is greater than the average variable cost. This is because the firm can cover its variable costs and make a contribution towards its fixed costs, even if it is not making a profit. In Exhibit 12-7, the price is above the average variable cost at all levels of output, so the firm should continue to operate in the short run to minimize losses.

Exhibit 12-7 the Figure Shows the Price,marginal Cost,and Average Cost