Question

In the short run, if AVC < P < ATC, a perfectly competitive firm:

(A) does not produce output and earns an economic profit.
(B) produces output and earns an economic profit.
(C) does not produce output and earns zero economic profit.
(D) produces output and incurs an economic loss.
(E) does not produce output and incurs an economic loss.

Answer 1

Answer: The correct answer is " (D) produces output and incurs an economic loss. ".

Explanation: In the short run, if AVC < P < ATC, a perfectly competitive firm produces output and incurs an economic loss.

because if the average variable cost (AVC) is less than the price and the average total cost (ATC) the company will produce and incur an economic loss just because producing, it loses less than if it did not produce.