A monopolistically competitive firm shuts down in the short run if ________.

Question

Quizplus · Accepted Answer

In the short run, a firm will shut down if it cannot cover its variable costs. This is because even though it may still have some fixed costs to pay, it would be better off shutting down and avoiding further losses. If total revenues do not cover variable costs, the firm is generating a loss for each unit produced and should therefore shut down.

A Monopolistically Competitive Firm Shuts Down in the Short Run