If variable cost is $15 million,fixed cost is $14 million,and total revenues are $13 million,in the short run the firm will _____ and in the long run the firm will ____.
A)shut down;go out of business
B)shut down;stay in business
C)operate;go out of business
D)operate;stay in business

Question

Quizplus · Accepted Answer

In the short run, if total revenues do not cover variable costs, the firm should shut down to minimize losses. Here, since total revenues ($13 million) are less than variable costs ($15 million), the firm should shut down in the short run. In the long run, if total revenues do not cover the sum of variable and fixed costs ($15 million + $14 million = $29 million), the firm cannot cover its total costs and will go out of business.

If Variable Cost Is $15 Million,fixed Cost Is $14 Million,and