If your firm is producing a good at a level where marginal revenue equals marginal cost, and price is between average variable cost and average total cost, then in the short run your firm should

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Quizplus · Accepted Answer

Since marginal revenue is equal to marginal cost, the firm is already producing at the efficient level of output. Additionally, if price is between average variable cost and average total cost, the firm is covering its variable costs and making some contribution toward its fixed costs. Therefore, in the short run, the firm should continue to produce at the same level of output. Shutting down would result in a loss equal to fixed costs, while increasing or decreasing output would not be efficient given that the firm is already producing at the efficient level.

If Your Firm Is Producing a Good at a Level