The perfectly competitive firm minimizes losses by shutting down whenever:

Question

Quizplus · Accepted Answer

In the short run, a perfectly competitive firm should continue to produce as long as the price is greater than the minimum point of the average variable cost curve. If the price falls below this point, the firm will be unable to cover its variable costs and will prefer to shut down in order to minimize losses. The condition in option D represents this minimum point and is the correct answer. Options A and B are incorrect because average fixed costs and average total costs are not relevant to the shutdown decision. Option C is incorrect because it does not consider the marginal cost of production.

The Perfectly Competitive Firm Minimizes Losses by Shutting Down Whenever