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 profit-maximizing firm will shut down if the total revenue it generates is less than its total variable costs. This is because, at this point, the firm cannot cover its variable costs, and it would minimize its losses by ceasing production. Continuing to operate would lead to losses greater than its fixed costs.

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