Refer to Figure 23.1 for a perfectly competitive firm.This firm should shut down in the short run if the market price is below
A) $5.
B) $10.
C) $15.
D) $20.

Question

Refer to Figure 23.1 for a perfectly competitive firm.This firm should shut down in the short run if the market price is below
A) $5. 
B) $10. 
C) $15. 
D) $20.

Quizplus · Accepted Answer

In the short run, a perfectly competitive firm should shut down if the market price is below the minimum average variable cost (AVC) at its profit-maximizing level of output. In Figure 23.1, the minimum AVC is $5, which occurs at the point where the firm's marginal cost (MC) curve intersects the AVC curve. Therefore, if the market price is below $5, the firm should shut down in the short run to minimize its losses.