Final answer:
In the short run, a purely competitive seller will shut down if the product price is less than the minimum average variable cost (AVC).
Step-by-step explanation:
In the short run, a purely competitive seller will shut down if the product price is less than the minimum average variable cost (AVC).
When the price falls below the AVC, the firm is not able to cover its variable costs with revenues. In this case, it would suffer a smaller loss if it shuts down and produces no output rather than staying in operation and producing at the level where marginal revenue (MR) equals marginal cost (MC). If it shuts down, it only loses its fixed costs.
For example, let's say a farmer is selling apples in a perfectly competitive market. If the price of apples falls below the cost of labor and other variable costs, the farmer would shut down the operations to minimize losses.