A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the
A) marginal revenue is greater than marginal cost.
B) price is at least equal to the minimum average variable cost.
C) total fixed costs are less than total revenue.
D) marginal cost is minimized.
E) price is also less than the minimum average variable cost.

Question

Quizplus · Accepted Answer

A perfectly competitive firm will continue to operate in the short run as long as it can cover its variable costs. If the market price is below its average total cost but at least equal to the minimum average variable cost, the firm can still cover its variable costs and will therefore continue to operate in the short run.

A Perfectly Competitive Firm Will Continue to Operate in the Short