In the short run, a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.

Question

Quizplus · Accepted Answer

In the short run, a profit-maximizing firm will shut down if its total revenue is less than its total variable costs, not greater. This is because the firm would still incur its fixed costs even if it shut down in the short run, so it is better off minimizing its losses by producing a quantity where price equals marginal cost (as long as price is greater than average variable cost).

In the Short Run, a Profit-Maximizing Firm Will Shut Down