Final answer:
A perfectly competitive firm will continue to produce in the short run and incur losses if the market price is greater than average variable cost and less than average total cost, as it allows the firm to cover variable and some fixed costs.
The correct answer is option d. greater than average variable cost and less than average total cost.
Step-by-step explanation:
A perfectly competitive firm will incur an economic loss but will continue to produce the profit-maximizing quantity of output in the short run if the price is greater than average variable cost and less than average total cost.
When the market price is in this range, it means that the firm is covering all of its variable costs plus a portion of its fixed costs, but not enough to be profitable overall. However, because the firm covers all of its variable costs, it makes sense to keep producing in the short term to minimize losses until conditions improve or until it decides to exit the market if it forecasts long-term unprofitability.