When a firm incurs losses in the short run,the most important consideration in determining whether to continue producing is whether
A)marginal cost equals marginal revenue
B)average total cost is at its minimum
C)average variable cost is at its minimum
D)revenues cover some of its fixed costs and all of its variable cost
E)total revenue exceeds total cost

Question

Quizplus · Accepted Answer

If a firm incurs losses in the short run, it should continue producing if its revenues cover some of its fixed costs and all of its variable costs. By doing so, the firm can minimize losses and recover some of its fixed costs. If the firm shuts down production, it will still have to pay its fixed costs but will not be able to generate any revenue to cover them. Therefore, it is better for the firm to continue producing as long as it can cover its variable costs. Marginal cost, average total cost, average variable cost, and total revenue are also important considerations, but they are not as crucial as covering variable costs to minimize losses.

When a Firm Incurs Losses in the Short Run,the Most