In perfect competition, when price is less than minimum AVC in the short run, the firm produces __________.

output level where AVC intersects SMC

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zero output

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both A and B

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none of the above

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Solution

The correct option is A zero output
If a profit-maximising firm produces a positive output in the short run, then the market price must be greater than or equal to the AVC at that output level. Hence when price is less than minimum AVC, the firm produces zero output.

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In perfect competition, when price is less than minimum AVC in the short run, the firm produces __________.

The correct option is A zero outputIf a profit-maximising firm produces a positive output in the short run, then the market price must be greater than or equal to the AVC at that output level. Hence when price is less than minimum AVC, the firm produces zero output.

The correct option is A zero output
If a profit-maximising firm produces a positive output in the short run, then the market price must be greater than or equal to the AVC at that output level. Hence when price is less than minimum AVC, the firm produces zero output.