If a firm shuts down in the short run it will
A)break even.
B)declare bankruptcy.
C)suffer a loss equal to its variable costs.
D)suffer a loss equal to its fixed costs.

Question

Quizplus · Accepted Answer

If a firm shuts down in the short run, it will suffer a loss equal to its fixed costs. This is because even if the firm is not producing anything, it still has to pay its fixed costs such as rent, insurance, and salaries of permanent employees. By shutting down, it avoids paying variable costs associated with producing output, but it cannot avoid fixed costs. Therefore, the firm will incur these fixed costs as losses if it shuts down.

If a Firm Shuts Down in the Short Run It