If the price faced by a competitive firm is less than its average total cost but
ID: 1194043 • Letter: I
Question
If the price faced by a competitive firm is less than its average total cost but greater than its variable cost when it produces a particular level of output, the firm
A. is making a positive profit and should continue to produce
B is incurring a loss in the short run, but it should continue to produce in order to minimize its loss
C. is breaking even, and so it should continue to produce
D. is incurring a loss and should shut down its plant immediately in order to minimize its loss
E. None of the Above
Explanation / Answer
The firm is breaking even and so it should continue to produce because prices are greater than its variable cost.