Assertion:Under perfect competition, in the short run, the firm continues to produce as long as the price remains less than or equal to the minimum of AVC. 

Reasoning: Along the supply curve, as we move down, the last price-output combination at which the firm produces positive output is the point of minimum AVC where the SMC curve cuts the AVC curve.

Assertion (A) is not true but Reasoning (R) is correct.

the correct answer is Option4: Assertion (A) is not true but Reasoning (R) is correct.

• Assertion (A) is false because it incorrectly states that the firm continues to produce as long as price (P) is less than or equal to the minimum AVC.

  • In reality, a firm in perfect competition continues to produce only if P is greater than or equal to the minimum AVC.
  • If P < AVC, the firm incurs losses greater than its fixed costs and should shut down to minimize losses.
  • The correct condition for continuing production in the short run is P ≥ AVC.

• Reasoning (R) is true because:

  • The shutdown point occurs where the MC curve intersects the AVC curve at its minimum point.
  • Below this point, the firm cannot cover its variable costs, so it shuts down.
  • As we move down along the supply curve, the last point where the firm produces positive output is at P = AVC_min, which is correctly described in the reasoning.