A firm stands to gain by operating instead of shutting down as long as ________ sufficiently covers ________.
A) price; average variable cost
B) price; average fixed cost
C) total revenue; total fixed costs
D) operating profit; economic profit

Question

Quizplus · Accepted Answer

A firm should continue operating as long as the price it receives for its product is sufficient to cover its average variable costs, even if it's not covering its total costs including fixed costs. This is because, in the short run, fixed costs are sunk and unavoidable, so covering variable costs can minimize losses.

A Firm Stands to Gain by Operating Instead of Shutting