If a firm is operating at a loss in the short run and finds that its price is greater than average variable cost, then in the short run:
A) it should produce where MR = MC.
B) it should produce zero output.
C) it should go out of business.
D) total revenue is less than total variable costs.

Question

Quizplus · Accepted Answer

If the firm is operating at a loss in the short run, but the price is still greater than average variable cost, it means that the firm is still covering its variable costs but not its fixed costs. In this case, the firm should produce where marginal revenue (MR) equals marginal cost (MC) to minimize the loss. Shutting down (producing zero output) would still result in a loss equal to fixed costs. Going out of business is not a short-run decision and would only be considered in the long run after assessing future profitability. Total revenue being less than total variable costs is true, but not relevant to the decision-making in this scenario.

If a Firm Is Operating at a Loss in the Short