When we see that the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will.

A) produce at a loss.
B) produce at a profit.
C) shut down production.
D) produce more than the profit-maximizing quantity.

Option (A) is correct.

Explanation:

In a short run, under a perfectly competitive market conditions:

If a firm will be able to cover its average variable cost then this firm will continue operating in this market. But this firm producing at an economic loss because it covers only a portion of the average total cost but not covers the overall total cost.

This firm continue operating in this market at this price level until the firm able to cover all of its variable cost and shut down its production when the price of the product is less than the average variable cost.

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