If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm
A)is earning a profit.
B)should shut down.
C)should increase output.
D)should increase price.

Question

Quizplus · Accepted Answer

If a firm's price is less than its average variable cost, it means that the firm is not generating enough revenue to cover its variable costs in the short run. In such a scenario, the firm should shut down operations because continuing to produce will only result in more losses. By shutting down, the firm can avoid incurring any additional variable costs and minimize their losses. Therefore, option B is the best choice.

If, for a Given Output Level, a Perfectly Competitive Firm's