In the short run, a firm should shut down its operation if:
A) its losses are less than TFC at the MR = MC point.
B) its losses equal TFC at the MR = MC point.
C) its losses are greater than TFC at the MR = MC point.
D) TR is less than TC.
E) TR exceeds TVC.

Question

Quizplus · Accepted Answer

In the short run, a firm should only continue to operate if its revenue (TR) covers at least its variable costs (TVC). If a firm's revenue is less than its total variable costs, then it should shut down to minimize its losses in the short run. However, if a firm's revenue is greater than its total variable costs, it should continue operating as long as its revenue covers at least its total costs (TC). If a firm's revenue is not enough to cover its total costs, then it should shut down in the short run to minimize its losses. Therefore, the firm should shut down its operation if its losses are greater than TFC (total fixed costs) at the MR = MC (marginal revenue equals marginal cost) point, which is the point at which the firm is maximizing its profits or minimizing its losses.

In the Short Run, a Firm Should Shut Down Its