A perfectly competitive firm finds itself in the following situation: TR = $5000; TC = $8000; FC = $3000; P = $5; MC = $5; and Q = 100 The firm should:
A) shut down.
B) continue to produce as it is now.
C) decrease production, but not shut down.
D) increase production.

Question

Quizplus · Accepted Answer

The firm should shut down because its total revenue (TR) is less than its total variable cost (TVC = TC - FC = $8000 - $3000 = $5000), meaning it cannot cover its variable costs, and continuing production would result in greater losses than shutting down.

A Perfectly Competitive Firm Finds Itself in the Following Situation