In the short run, a profit-maximizing firm's decision to produce should be guided by whether
A)it makes a profit.
B)its marginal profit is maximized.
C)its total revenue exceeds its fixed cost.
D)its total revenue covers its variable cost.

Question

Quizplus · Accepted Answer

In the short run, a firm should produce only if its total revenue covers its variable cost. This is because fixed costs are sunk costs that cannot be avoided in the short run, so the firm should focus on covering the variable costs of production to minimize losses. Marginal profit maximization and profit are important considerations in the long run, but in the short run, the firm's decision to produce is guided by its ability to cover variable costs. Therefore, option D is the correct choice.

In the Short Run, a Profit-Maximizing Firm's Decision to Produce