A profit-maximizing firm will shut down in the short run when

Question

Quizplus · Accepted Answer

In the short run, a firm should shut down if the price is less than the average variable cost. This is because the firm is unable to cover its variable costs, and continuing to produce would only result in further losses. By shutting down, the firm can minimize its losses and minimize its overall costs. If the price is greater than the average variable cost, the firm should continue to produce in the short run, even if it is not covering its total costs.

A Profit-Maximizing Firm Will Shut Down in the Short Run