Final answer:
A stop loss order does not guarantee an exit at the designated price; it depends on market conditions. Economically, a firm will shut down in the short run if the price falls below its minimum average variable cost, and stay in business if the price is higher, which is particularly pertinent for perfectly competitive firms.
Step-by-step explanation:
The question under examination pertains to a stop loss order, which is a tool used by investors to limit their potential losses in the stock market. Contrary to the statement in the question, a stop loss order does not guarantee an exit at the designated price, particularly in a fast-moving market where the stock price could gap down below the stop loss level, resulting in an execution at a lower price. This concept is relevant to the economic idea that in the short run, if the price at which a firm can sell its product is below its minimum average variable cost, it is more economically efficient for the firm to shut down and cease production rather than continue to operate at a loss.
In contrast, if the price is above the minimum average variable cost, the firm can cover its variable costs plus some of its fixed costs, making it more sensible to stay in business, at least in the short run. These scenarios are typical for perfectly competitive firms, which are price takers in the market and must make decisions based on price margins and cost structures.