A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should
A)shut down in the short run.
B)produce because the resulting loss is less than its TFC.
C)produce because it will realize an economic profit.
D)liquidate its assets and go out of business.

Question

Quizplus · Accepted Answer

In the short run, a firm should continue to operate as long as it can cover its variable costs, even if it's incurring a loss. Here, the total revenue ($900) is greater than the total variable cost ($800), meaning the firm can cover its variable costs and part of its fixed costs. Shutting down would result in a loss equal to the total fixed costs ($200), which is greater than the current loss of $100 ($1000 total cost - $900 total revenue). Therefore, continuing to produce minimizes the firm's losses compared to shutting down.

A Firm Finds That at Its MR = MC Output