A firm will shut down in the short run
A) when price is below average variable costs at all levels of output.
B) when price is below average fixed costs at all levels of output.
C) when price is below average total costs at all levels of output.
D) when price is below marginal costs at all levels of output.
E) whenever the firm is losing money.

Question

Quizplus · Accepted Answer

In the short run, a firm will shut down when price is below average variable costs at all levels of output. This is because the firm is unable to cover even its variable costs, which means it is incurring losses on each unit produced. Shutting down in the short run allows the firm to minimize its losses by avoiding any further variable costs.

A Firm Will Shut Down in the Short Run