If, at the point where MR = MC, the firm incurs losses, in the short run the firm should:
A) shut down.
B) increase output.
C) decrease output.
D) continue at its current output if P AVC.
E) continue at its current output if P ATC.

Question

If, at the point where MR = MC, the firm incurs losses, in the short run the firm should:
A) shut down.
B) increase output.
C) decrease output.
D) continue at its current output if P > AVC.
E) continue at its current output if P > ATC.

Quizplus · Accepted Answer

In the short run, a firm should continue operating if the price (P) is greater than average variable cost (AVC), even if it incurs losses, because it can cover its variable costs and contribute to fixed costs.

If, at the Point Where MR = MC, the Firm