header bg

Question:

A firm operates in perfect competition. Given that price lies between average variable cost and average total cost, the firm’s short-run and long-run operating decisions will most likely be:
Short Run and Long Run

A Continue to operate and Exit market
Explaination

When price lies between AVC and ATC, the firm will remain in production in the short run, as it meets all variable costs and covers a portion of its fixed costs. To remain in business in the long run, the firm must break even or cover all costs, so price must at least equal ATC.