Question

In the short run, the firm will:

A) Shut down if the price falls below P3.
B) Continue to produce as long as the price is greater than P1.
C) Continue to produce as long as the price is greater than P2.
D) Earn economic profits as long as the price is greater than P2.

Answer 1

In the short run, the firm will continue to produce as long as the price is greater than P2 and incur economic losses if the price is between the average variable cost (AVC) and the average total cost (ATC).

Step-by-step explanation:

In the short run, the firm will continue to produce as long as the price is greater than P2. If the price falls below the average variable cost (AVC), the firm should stop producing and only incur its fixed costs. If the price is between the average variable cost (AVC) and the average total cost (ATC), the firm will continue to produce in the short run but will incur economic losses.