What action should a perfectly competitive firm take if,at its present output,MC is equal to price,MC is increasing and is less than the average variable cost?

Question

Quizplus · Accepted Answer

If a firm's marginal cost (MC) is equal to the price but is less than the average variable cost (AVC), it means the firm is not covering its variable costs at its current output level. In a perfectly competitive market, firms cannot set prices; prices are determined by the market. Therefore, if the firm cannot cover its variable costs, the best action is to shut down in the short run to minimize losses.

What Action Should a Perfectly Competitive Firm Take If,at Its