Pts Cost IL P1=MRI B Po=MRO N 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 Quantity Utilize the graph above, which illustrates average fixed costs, average variable costs, average total costs, and marginal costs of production for a firm in a perfectly competitive market, to answer the following question. If the price is P, what should the firm do? The firm should shut down in the short-run because price Is below AVC. In the long-run, they will assess the market conditions to see whether they should reopen for business or exit the market. The firm should increase production because marginal cost is less than marginal revenue. Therefore, the firm has not maximized operating economic profits. The firm is earning an economic profit of $0. Therefore, the firm has no incentive to leave the market at this point. In addition, there shouldn't be any market changes that lead to a reduction or increase in the market price. The firm should exit the market because firms will soon enter. This will drive the price below ATC, which will cause the firm to earn economic losses. The firm should decrease production because marginal revenue is greater than marginal cost. Therefore, the firm has not maximized operating profits