Suppose that at a firm's profit-maximizing level of output, its total revenue is $1,250, the total cost of its variable factors of production is $1,000, and its total fixed cost is $500. This firm will ________ in the short run, and will ________ in the long run.
A)shut down; reopen for business
B)earn a profit; earn a loss
C)earn a loss; earn a profit
D)not shut down; exit the industry

Question

Quizplus · Accepted Answer

In the short run, the firm must pay fixed costs whether it operates or not. Thus, as long as the firm's total revenue is high enough to cover its variable cost, it will continue to operate in the short run. If its profits are negative, however, the firm will exit the industry in the long run.

Suppose That at a Firm's Profit-Maximizing Level of Output, Its