A firm operating in a competitive market will stay in business in the short run so long as the market price exceeds the firm's average total cost; otherwise, the firm will shut down.

Question

Quizplus · Accepted Answer

A firm operating in a competitive market will stay in business in the short run so long as the market price exceeds the firm's average variable cost, not necessarily its average total cost. If the price covers the average variable cost, the firm can cover its variable costs and contribute something towards its fixed costs, even if it's not covering its total costs.

A Firm Operating in a Competitive Market Will Stay in Business