The figure given below shows the demand and cost curves of a perfectly competitive firm.Figure: 10.4
D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
-Refer to Figure 10.4. The presence of the average-variable-cost curve suggests that the firm is operating:

Question

The figure given below shows the demand and cost curves of a perfectly competitive firm.Figure: 10.4
  D: Demand curve
MC: Marginal cost curve
ATC: Average-total cost curve
AVC: Average-variable-cost curve
-Refer to Figure 10.4. The presence of the average-variable-cost curve suggests that the firm is operating:

Quizplus · Accepted Answer

The presence of the average-variable-cost curve suggests that the firm is operating in the short run. In the short run, the firm can only adjust its variable inputs, such as labor and raw materials, but not its fixed inputs, such as capital and equipment. The AVC curve indicates the minimum average variable cost at each level of output. If the price is above the minimum AVC, the firm can cover its variable costs and some portion of its fixed costs, and thus can continue to operate in the short run. However, if the price is below the minimum AVC, the firm cannot even cover its variable costs and should shut down in the short run.

The Figure Given Below Shows the Demand and Cost Curves