If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm
A)is earning a profit.
B)should shut down.
C)should increase output.
D)should increase price.

Question

Quizplus · Accepted Answer

If the price is less than the average variable cost, the firm is not covering its variable costs, therefore it is generating losses. In this case, the best option for the firm is to shut down in the short run and avoid further losses.

If, for a Given Output Level, a Perfectly Competitive Firm's