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Graphically represent a firm in perfect competition earning a loss. What does the firm do in...

Graphically represent a firm in perfect competition earning a loss. What does the firm do in the short run? What happens to the market in the long run?

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In the above graph, it can be seen that in a perfect completion in the short run, a firm is running in loss because the price is less than the average cost. The firm continues to stay in the market is price is greater than average variable cost in the short run and this is because in the long run due to the losses firms get to exit with which supply decreases and price increases such that the firms get to earn normal profit in the long run. However if the price is less than average variable cost in the short run, the firm will shut down.

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