-The above figure shows a perfectly competitive firm.If the market price is $15 per unit,the firm
A) will definitely shut down to minimize its losses.
B) will stay open to produce and will make zero economic profit.
C) will stay open to produce and will incur an economic loss.
D) will stay open to produce and will make an economic profit.
E) might shut down but more information is needed about the fixed cost.

Question

-The above figure shows a perfectly competitive firm.If the market price is $15 per unit,the firm
A) will definitely shut down to minimize its losses. 
B) will stay open to produce and will make zero economic profit. 
C) will stay open to produce and will incur an economic loss. 
D) will stay open to produce and will make an economic profit. 
E) might shut down but more information is needed about the fixed cost.

Quizplus · Accepted Answer

In a perfectly competitive market, if the market price is above the average variable cost but below the average total cost, the firm will continue to produce in the short run to cover some of its fixed costs, even though it incurs an economic loss. This is because by producing, the firm can cover its variable costs and contribute to fixed costs, minimizing losses compared to shutting down immediately.

-The Above Figure Shows a Perfectly Competitive Firm