Under what conditions would a perfectly competitive cotton farmer who is incurring an economic loss temporarily stay in business?
A) if the total revenue exceeds the total fixed cost
B) if the total revenue exceeds the total variable cost
C) if the total revenue is positive
D) if the total revenue is increasing
E) if the marginal revenue exceeds the price.

Question

Quizplus · Accepted Answer

A perfectly competitive cotton farmer who is incurring an economic loss could temporarily stay in business if the total revenue exceeds the total variable cost. This is because even though they are making a loss in the short run, they can cover their variable costs and contribute towards their fixed costs. If they were to shut down completely, they would have to bear the entire cost of the fixed cost without any contribution towards it. Therefore, the farmer would continue to operate in the short run as long as they are covering their variable costs.

Under What Conditions Would a Perfectly Competitive Cotton Farmer Who