Suppose a perfectly competitive firm is producing a level of output such that its average revenue is less than its lowest average variable cost.The firm should
A)reduce its output.
B)expand its output.
C)produce zero output.
D)increase the market price.
E)not change its output.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, if a firm's average revenue is less than its lowest average variable cost, it cannot cover its variable costs and should shut down in the short run, producing zero output.

Suppose a Perfectly Competitive Firm Is Producing a Level of Output