Assume a firm closes down in the short run and produces no output. Under these conditions,
A)TVC is positive, but TFC and TC are zero.
B)TFC is positive, but TVC and TC are zero.
C)TFC and TC are positive, but TVC is zero.
D)TFC, TVC, and TC will all be positive.

Question

Quizplus · Accepted Answer

In the short run, a firm that shuts down will still incur total fixed costs (TFC) because these costs are incurred regardless of the level of production. However, total variable costs (TVC) will be zero because they are directly related to the level of production, which is zero in this case. Total cost (TC) is the sum of TFC and TVC, so with TFC being positive and TVC being zero, TC will also be positive.

Assume a Firm Closes Down in the Short Run and Produces