If variable cost of production can't be covered by the revenue
generated from the sale, afirm will shutdown its production
process.
In the short run if the price exceeds average variable costs
then the firm should continue its production process. However, if
the variable cost is greater than the revenue from the sale
proceeds then the firm should shutdowm immidiately.
In other words, we can say if marginal revenue is greater than
average total cost, the competitive firm will continue to produce,
even when marginal revenue is less than the variable, or marginal
cost,.
In the long run if P ≥ LRAC then the firm will remain in the
production and will not exit the industry. On the other hand if P
< LRAC, then the firm will halt its production and exit the
industry.