In the short-run,if a competitive firm finds itself operating at a loss,it will:
A)have to shut down and exit the market.
B)continue to operate as long as price is greater than average variable cost.
C)liquidate all its assets to ensure cash flow.
D)reduce the size of its plant to lower fixed costs.

Question

Quizplus · Accepted Answer

In the short-run, a competitive firm will continue to operate as long as price is greater than average variable cost even if it is operating at a loss. This is because shutting down immediately would incur additional costs such as paying off outstanding debts and terminating leases. By continuing to operate, the firm can at least cover its variable costs and contribute towards its fixed costs, which may be recovered in the long-run.

In the Short-Run,if a Competitive Firm Finds Itself Operating at a Loss,it