Question: A firm operates under conditions of perfect competition and produces in the short run that quantity, Q*, at which its marginal revenue is equal to

A firm operates under conditions of perfect competition and produces in the short run that quantity, Q*, at which its marginal revenue is equal to its marginal cost (MR=MC). If the price (P) of the product is less than its average variable cost (AVC), explain with the help of a relevant diagram, which of the following four actions on the part of the firm ensures the maximization of profits or the minimization of its losses of a firm:

a) increase in the quantity produced,

b) decrease in the quantity produced,

c) continuation of the operation of the firm in the short run without any change,

d) the firm stops its production

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