Question

a perfectly competitive firm short run, has minimum AVC=$3 and minimum ATC = $5. if price P=$4 which of the statements below is true

Answer 1

a perfectly competitive firm in short run has a minimum AVC = $3 and minimum ATC =5 dollar price is equal to $4.

As the average variable cost is $3, average total cost is $5, at the current level of output , average fixed costi is $2 dollar derived by subtracting average variable cost from average total cost.

It also implies that firm would run its business in short run only, because if it doesn't covers the average fixed cost of $1.

There are chances that firm can shut down in long run, if there is not increasing trend of price,

Because in the short run firm is not able to recover its fixed cost