Refer to the accompanying figure. A firm would shut down in the short run if the price is:

Question

Quizplus · Accepted Answer

The firm would shut down in the short run if it cannot cover its variable costs, which is the blue line in the graph. The firm incurs variable costs at every level of output, so the blue line starts at the origin. At a price of $4 or below, the firm cannot cover its variable costs at any level of output, so it would shut down. At a price above $4, the firm can cover its variable costs at some level of output, so it would continue to operate in the short run. Therefore, option D is the only correct answer.

Refer to the Accompanying Figure