A perfectly competitive organization has a presumption for the production of appropriate quantity of output that helps in minimizing the economic losses, if the amount of price is more than the average cost of variable but not more than the amount of average total cost.
Short- Run Position in Perfect Competition
An organization within a market of perfect competition may end up finding itself within the unenviable situation to suffer an amount of loss irrespective of what level of output is being produced. In such an event, the organization is known to be having two different alternatives: the operations may continue even if there is loss, or it may end up being shut down. Within the scenario of short run, an organization may continuously be producing, even though it has been identified as the best output for yielding a loss.
In consideration with the long run, organization change the levels of production in responding to the economic losses or profits, and the variations in entrepreneurship, capital goods, labor and land for reaching the related average cost in the long run. The position in the long run seems to be having an association with the curve of average cost in the long run (LRAC) in the models of micro- economic along which an organization would be minimizing the average costs for all of the respective quantity of output in the long run. In perfect competition of the long- run, LRAC= LRMC at the associated output and minimum level of LRAC.