If a firm in circumstances of perfect competition finds that, at its best possible operating position, total revenue is not sufficient to cover total variable costs, it should:
A)plan to shut down, even in the short run.
B)plan to continue operating permanently.
C)continue to operate if, at this same level of output, price per unit is sufficient to cover average cost.
D)increase the price it is charging.
E)decrease the price it is charging.

Question

Quizplus · Accepted Answer

In a perfect competition scenario, if a firm's total revenue does not cover its total variable costs at its best operating position, it should plan to shut down, even in the short run. This is because continuing operations would mean incurring further losses, as the firm cannot even cover the costs directly associated with production.

If a Firm in Circumstances of Perfect Competition Finds That