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This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test. What happens if a perfectly competitive firm shuts down in the short run?If a firm shuts down in the short run: Its loss equals its fixed cost.
At what price does the perfectly competitive firm shut down in the short run?A business needs to make at least normal profit in the long run to justify remaining in an industry but in the short run a firm will produce as long as price per unit > or equal to average variable cost (AR = AVC). This is called the shutdown price in a competitive market.
What happens in the short run in a perfectly competitive market?In the short run, the perfectly competitive firm will seek the quantity of output where profits are highest or—if profits are not possible—where losses are lowest. In this example, the short run refers to a situation in which firms are producing with one fixed input and incur fixed costs of production.
When should a firm shut down in the short run?In addition, in the short run, if the firm's total revenue is less than variable costs, the firm should shut down.
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