A firm can minimize its losses by shutting down when ________ are less than ________ costs.
A) variable costs; fixed
B) fixed costs; variable
C) revenues; variable
D) operating profits; sunk

Question

Quizplus · Accepted Answer

A firm can minimize its losses by shutting down when revenues are less than variable costs. This is because, at this point, the firm cannot cover the costs that vary with production, indicating that continuing operations would lead to greater losses than just bearing the fixed costs. Fixed costs are incurred regardless of production levels, so they are not a factor in the decision to shut down in the short run.

A Firm Can Minimize Its Losses by Shutting Down When