A firm will not shut down in the short run as long as price exceeds

Question

Quizplus · Accepted Answer

In the short run, a firm will produce as long as price exceeds its average variable cost at the level of output where marginal revenue equals marginal cost. This is because even though the firm may not be covering all its costs (i.e average fixed cost), it is still contributing to covering its variable costs and at least making some profit. If price falls below average variable cost, the firm will not be able to cover its variable costs and will shut down in the short run.

A Firm Will Not Shut Down in the Short Run