If a perfectly competitive firm is producing at the output level where marginal revenue is equal to marginal cost and at this output level, the firm's total revenue is less than its variable cost, the firm______.

Question

Quizplus · Accepted Answer

If the firm's total revenue is less than its variable cost, it is not covering all its costs, including its opportunity cost of production. This means it is earning a negative economic profit and should shut-down in the short run to minimize its losses. In the long run, the firm will exit the industry if it cannot earn a positive economic profit.

If a Perfectly Competitive Firm Is Producing at the Output