In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if
A) marginal cost is greater than average revenue.
B) average cost is greater than average revenue.
C) average fixed cost is greater than average revenue.
D) total revenue is less than total variable cost.

Question

Quizplus · Accepted Answer

In the short run, a firm will shut down if it cannot cover its variable costs. This means that if the total revenue is less than the total variable cost, the firm will not be able to cover its variable costs and will shut down to avoid further losses. A and B are incorrect because they only consider the relationship between costs and revenue, but do not account for fixed costs. C is incorrect because it only considers fixed costs and not variable costs.

In the Standard Model of Pure Competition, a Profit-Maximizing Firm