Competitive firms that earn a loss in the short run should
A)shut down if P

Question

Competitive firms that earn a loss in the short run should
A)shut down if P < AVC.
B)raise their price.
C)lower their output.
D)All of the above are correct.

Quizplus · Accepted Answer

If a competitive firm earns a loss in the short run, it should shut down if the price (P) is less than Average Variable Cost (AVC). This is because shutting down would minimize its losses (zero output and no costs), whereas continuing to produce would result in further losses. Raising price or lowering output would not be effective solutions in the short run as the firm is a price taker and would not be able to affect the market price.

Competitive Firms That Earn a Loss in the Short Run