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A perfectly competitive firm will shut down in the short run when a. ATC > P...

A perfectly competitive firm will shut down in the short run when a. ATC > P > AVC. b. AVC > P > ATC. c. AVC > P. d. ATC > P.

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Answer #1

Solution:

Answer: - Option C) AVC > P

Explanation: - In the short run, some costs are fixed (which are beyond the control of producer / firm) while some costs are variable which are within the control of the producer / firm. The firm / producer will continue to produce goods and services in a perfectly competitive market till the time its price (P) exceeds Average variable costs (AVC). In other words, producer / firm in perfectly competitive market will feel happy if at least variable costs are covered. Accordingly, if price (P) less than (<) the average variable cost (AVC) in the short run for perfectly competitive market then it will exit from the industry i.e., shut down producing the goods and services.

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