A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average total cost but greater than the firm's average variable cost.

Question

Quizplus · Accepted Answer

In the short run, a firm will continue to operate if it can cover its average variable costs, even if it's incurring losses because the market price is below its average total cost but above its average variable cost. This is because, in the short run, the firm can still cover its variable costs and some portion of its fixed costs, minimizing losses compared to shutting down immediately.

A Firm Operating in a Perfectly Competitive Industry Will Continue