The following diagram shows the cost curves of a firm under perfect competition. MC 110 100 AC 90 AVC 80 70 60 50 40 30 20 10 10 15 20 25 30 35 40 45 Quantity At a price of E40, the firm produces units with an average cost of E and the firm has a profit of E Suppose that the market price jumps to 80. Now the firm produces units with an average cost of E and the firm has a profit of Now the market price is 50. In the short run, the firm produces units and the profit at this quantity of output is E In the short run, the firm produces zero if the market price is below In the long run, the firm will shut down if the market price is below E