A profit-maximizing firm should shut down in the short run if the average revenue it receives is less than
A) average variable cost.
B) average total cost.
C) average fixed cost.
D) marginal cost.

Question

Quizplus · Accepted Answer

If a firm's average revenue is less than its average variable cost, it means that the firm is not even covering its variable costs with the revenue it is generating. In this case, the firm is better off shutting down than continuing to operate and lose money, as it would minimize its losses. Therefore, option A is the correct choice.

A Profit-Maximizing Firm Should Shut Down in the Short Run