If price is below average variable costs at all rates of output, the quantity supplied by a perfectly competitive firm will equal

Question

Quizplus · Accepted Answer

If the price is below the average variable cost at all rates of output, then the firm will incur losses no matter how much it produces. In a perfectly competitive market, firms are profit maximizers and will only produce when they can cover their variable costs and earn a profit. Therefore, if they cannot cover their costs, they will produce zero output and shut down in the short run.

If Price Is Below Average Variable Costs at All Rates