If a profit-maximising, perfectly competitive firm is producing a quantity at which price is higher than average total cost but lower than average variable cost, then a.keep producing both in the short run and in the long run b.keep producing in the short run but exit the market in the long run c.shut down in the short run but return to production in the long run d.shut down in the short run and exit the market in the long run e.Such situation cannot occur.

a) Describe the factors that drive profits to zero in perfectly competitive markets in the long run. Explain carefully the incentives that drive the market to a long run equilibrium. b) Why would a firm choose to operate at a loss in the short run? Explain carefully. c) When do firms decide to shut down production in the short run? Explain carefully.

My answer was wrong can I be shown explained what the right answer is?

Refer to the figure above. When the demand curve is given by P2 = $15, this firm should ______ A. continue to operate in the short run and think about shutting down in the long run B. discontinue operation in the short run since there is a loss when operating. C. keep operating as long as loss is not greater than total cost D. discontinue operation in the short run since average total cost is greater than price.   When the demand is P3 = $10, this firm should ______ A. continue to operate in the short run and think about shutting down in the long run B. discontinue operation in the short run since the firm is unable to cover variable costs. C. keep operating as long as loss is not greater than total cost D. discontinue operation in the short run since average total cost is greater than price.