A price- taking firm in the short run should not produce any level of output unless
A) marginal revenue equals average total cost.
B) average revenue equals or exceeds average variable cost.
C) it is earning positive profits.
D) marginal revenue exceeds marginal cost.
E) average revenue equals or exceeds average total cost.

Question

Quizplus · Accepted Answer

In the short run, a firm should only produce if its average revenue equals or exceeds its average variable cost. This is because if the firm produces at a level where average revenue is less than average variable cost, it would be better off shutting down and minimizing its losses. If average revenue exceeds average variable cost, the firm would earn a positive contribution margin that could help cover its fixed costs. However, producing at a level where marginal revenue exceeds marginal cost is only optimal in the long run, when the firm has the ability to adjust its fixed costs.

A Price- Taking Firm in the Short Run Should Not