A firm will shut down temporarily when the price is so low that total revenue is insufficient to cover the

Question

Quizplus · Accepted Answer

Total variable cost of production includes the costs of the materials, labor, and other inputs needed to produce the goods or services. When the price is too low and unable to cover the variable costs, the firm would not be able to make a profit, and temporary shutdown becomes a viable option. The fixed costs, on the other hand, are sunk costs that the firm has to bear, regardless of the production levels, and therefore do not affect the decision to shut down.

A Firm Will Shut Down Temporarily When the Price Is