9.3 Short-Run Decisions
Assume the following total cost schedule for a perfectly competitive firm.
TABLE 9-2
-Refer to Table 9-2.In order to maximize its profits,the firm should continue to produce in the short run even if the market price is less than its ATC as long as the price is greater than or equal to

Question

9.3 Short-Run Decisions
Assume the following total cost schedule for a perfectly competitive firm.
  TABLE 9-2
-Refer to Table 9-2.In order to maximize its profits,the firm should continue to produce in the short run even if the market price is less than its ATC as long as the price is greater than or equal to

Quizplus · Accepted Answer

In the short-run, a perfectly competitive firm should continue to produce as long as price is greater than or equal to average variable cost (AVC) to cover its variable costs. If price falls below AVC, the firm should shut down and only incur its fixed costs. This is because the firm can always exit the market in the long run and avoid its fixed costs, but it cannot recover its variable costs in the short run. Therefore, the best choice for the firm to continue producing in the short run is when price is greater than or equal to AVC.

9.3 Short-Run Decisions Assume the Following Total Cost Schedule for a Perfectly Competitive