A firm will shut down in the short run if its revenues fail to cover its
A) fixed costs.
B) variable costs.
C) total costs.
D) sunk costs.

Question

Quizplus · Accepted Answer

In the short run, a firm will shut down if its revenues fail to cover its variable costs because variable costs are costs that vary with the level of output and must be paid regardless of whether the firm shuts down or continues production. If the firm's revenues do not cover its variable costs, it will continue to incur losses as long as it operates, and it will be better off shutting down in the short run to minimize its losses.

A Firm Will Shut Down in the Short Run If