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
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.