If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm
A)should produce in the short run.
B)is making short-run profits.
C)should shut down in the short run.
D)has covered its fixed cost.

Question

Quizplus · Accepted Answer

If the total variable cost exceeds total revenue at all output levels, the firm is operating at a loss, and it should shut down in the short run. This is because it is not even covering its variable costs, let alone fixed costs. Shutting down would minimize the loss incurred. In the long run, the firm may have to exit the market.

If Total Variable Cost Exceeds Total Revenue at All Output