The figure given below shows the revenue and cost curves of a perfectly competitive firm.Figure 10.2
MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
-In the short run, a firm continues to produce only if it can cover the:

Question

The figure given below shows the revenue and cost curves of a perfectly competitive firm.Figure 10.2
  MC: Marginal cost curve
MR: Marginal revenue curve
ATC: Average-total-cost curve
AVC: Average-variable-cost curve
-In the short run, a firm continues to produce only if it can cover the:

Quizplus · Accepted Answer

In the short run, a firm continues to produce only if it can cover its variable costs. This is because fixed costs are sunk costs and cannot be recovered in the short run. Therefore, the firm should continue to produce as long as it can cover its variable costs. In the given figure, the MC curve intersects the AVC curve at point A, indicating that the firm should produce output Q* and charge a price of P* in order to cover its variable costs.

The Figure Given Below Shows the Revenue and Cost Curves