If a firm's price covers some of its fixed costs but all of its variable cost, it:

Question

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When a firm's price covers all of its variable costs plus some of its fixed costs, it means that by continuing to operate, the firm can contribute to covering its fixed costs, which are incurred regardless of the level of production. Shutting down would mean the firm incurs a loss equal to its total fixed costs. Therefore, the firm should continue to produce as long as the price covers the variable cost, and aim to produce at the quantity where marginal cost (MC) is equal to marginal revenue (MR) to maximize profit or minimize losses.

If a Firm's Price Covers Some of Its Fixed Costs