If a firm's marginal revenue is equal to marginal cost at an output level where average variable cost is rising, the firm should shut down.

Question

Quizplus · Accepted Answer

A firm should continue operating as long as the price (or marginal revenue) covers the average variable cost, even if the average variable cost is rising, because it means the firm is covering its variable costs and contributing to fixed costs. Shutting down is considered if the revenue does not cover the average variable costs.

If a Firm's Marginal Revenue Is Equal to Marginal Cost