A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than which of its costs

Question

Quizplus · Accepted Answer

In the short run, a firm will shut down if the total revenue it would get from producing and selling its output is not sufficient to cover its variable costs. This is because in the short run, fixed costs (such as rent, salaries, and loan repayments) cannot be changed, and must still be paid even if the firm shuts down. Therefore, the firm will only continue to operate if its revenues cover at least its variable costs. If revenue falls short of variable costs, the firm would be better off shutting down and avoiding losses.

A Firm Will Shut Down in the Short Run If