When total revenue is less than variable costs in the short run,what will a firm in a competitive market do

Question

Quizplus · Accepted Answer

In the short run, a firm should only operate if it can cover its variable costs. If total revenue is less than variable costs, this means that the firm is not even covering its variable costs and is making a loss on each unit produced. Therefore, it is better to shut down temporarily and minimize losses until the market conditions improve. A firm cannot continue to operate as long as average revenue exceeds marginal cost or average fixed cost if it cannot even cover its variable costs. And it may not always exit the industry as it may wait for market conditions to improve before starting production again.

When Total Revenue Is Less Than Variable Costs in the Short