Consider a firm with the following cost and revenue information: ATC = $8, AVC = $7, and MR = MC = $6. If the firm produces Q = 60 in the short run, it:

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In the short run, a firm should continue producing as long as price (which is equal to MR) is greater than AVC. In this case, MR equals MC at $6, which is lower than AVC at $7. This means that the firm is not even covering its variable costs and is therefore operating at a loss. If the firm shuts down, it will still incur a loss equal to its fixed costs, but producing more will only increase the total loss. Therefore, the best option for the firm is to shut down in the short run.

Consider a Firm with the Following Cost and Revenue Information