In the short run, a profit-maximising firm's decision to produce should be guided by whether
A)it makes a profit.
B)its marginal profit is maximised.
C)its total revenue exceeds its fixed cost.
D)its total revenue covers its variable cost.

Question

Quizplus · Accepted Answer

In the short run, a firm should continue to produce as long as its total revenue covers its variable costs, even if it means incurring losses on its fixed costs. This is because in the short run, fixed costs cannot be changed, and stopping production would not recover them. However, if the firm covers its variable costs, it can still contribute to covering its fixed costs and potentially make a profit in the long run. Therefore, option D is the best choice.

In the Short Run, a Profit-Maximising Firm's Decision to Produce