Final answer:
False, a purely competitive firm will not maximize profit at a market price below minimum average variable cost because it should shut down immediately to minimize losses.
Step-by-step explanation:
The statement that a purely competitive firm in the short run will maximize profit by producing up to the point where marginal revenue is equal to marginal cost, if the market price is less than minimum average variable cost, is false. A purely competitive firm determines its output level by where price, or marginal revenue, is equal to marginal cost (P = MR = MC). However, if the market price is below the minimum average variable cost, the firm should shut down immediately in the short run to minimize losses. Conversely, if the price is above average variable cost but below average total cost, the firm should continue producing in the short run but prepare to exit in the long run.
The equivalency between the marginal cost curve and the firm's supply curve applies only when the price is above the minimum point on the average variable cost curve. Once the market price falls below this point, the firm should cease operations to avoid incurring losses from operating costs that exceed the revenues generated by each additional unit sold.