Question

In the short run, a perfectly competitive firm should shut down whenever minimum average variable cost exceeds price minimum average variable cost exceeds price A minimum average total cost exceeds price minimum average total cost exceeds price B marginal revenue exceeds marginal cost marginal revenue exceeds marginal cost C marginal cost exceeds marginal revenue marginal cost exceeds marginal revenue D it is losing money

Answer 1

Answer:

A. minimum average variable cost exceeds price.

Explanation:

In a perfect competition, there are many buyers and sellers of homogeneous products, and there is free entry and exit in the market.

This simply means that, in a perfectly competitive market, there are many buyers and sellers (price takers) of homogeneous products (standardized products with substitute) and the market is free (practically open) to all individuals or business entities that are willing to trade all their goods and services.

Hence, a perfectly competitive market is characterized by the following features;

1. Perfect information.

2. No barriers, it is typically free.

3. Equilibrium price and quantity.

4. Many buyers and sellers.

5. Homogeneous products.

Examples of a perfectly competitive market are the Agricultural sector, e-commerce and the foreign exchange market

In the short run, a perfectly competitive firm should shut down whenever minimum average variable cost exceeds price.

However, the firms always strive to maximize profits by increasing their level of output, such that P = MC. Also, the firms wouldn't be willing to leave or enter into the market because they are not making any profit, such that P=AC.