If SnuggleTight, a pillow-making firm in Long Island, NY, incurs losses by producing where its MR = MC, then at least in the short run, it should
A) shut down
B) increase output
C) decrease output
D) remain at that output level only if P AVC
E) remain at that output level only if P ATC

Question

If SnuggleTight, a pillow-making firm in Long Island, NY, incurs losses by producing where its MR = MC, then at least in the short run, it should
A) shut down
B) increase output
C) decrease output
D) remain at that output level only if P > AVC
E) remain at that output level only if P > ATC

Quizplus · Accepted Answer

In the short run, a firm should continue to operate if the price (P) is greater than the average variable cost (AVC) because it can cover its variable costs and contribute to covering some of its fixed costs, even if it's incurring losses. This is because shutting down would mean the firm has to bear the entire fixed costs without any revenue to offset it.

If SnuggleTight, a Pillow-Making Firm in Long Island, NY, Incurs