When a profit-maximizing firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs,what should it do in the short run

Question

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In the short run, a profit-maximizing firm in a competitive market should continue to produce as long as total revenue is sufficient to pay variable costs. This is because in the short run, fixed costs cannot be changed and must be paid regardless of production. By continuing to produce, the firm can at least cover its variable costs, which are directly related to production. Shutting down and incurring a loss equal to fixed costs (option A) would not be a rational choice as it would result in a larger loss than if the firm continued to produce. Shutting down until AR exceeds average fixed cost (option B) is not necessarily the best option because the firm would still be incurring fixed costs during this period of shutdown. Producing as long as MC is less than AR (option C) is only the correct answer when the firm is profitable, but in this case, the firm is unable to generate enough revenue to pay all of its fixed costs.

When a Profit-Maximizing Firm in a Competitive Market Is Unable