A profit-maximizing firm should shut down in the short run if:
A) price is greater than marginal cost.
B) total revenue is less than total variable cost.
C) the firm is earning less than a normal rate of return.
D) the firm is not able to cover its overhead expenses.
E) marginal cost is higher than average cost.

Question

Quizplus · Accepted Answer

In the short run, a firm should compare total revenue with total variable cost. If total revenue is less than total variable cost, then the firm is not even earning enough to cover its variable costs. In this case, the firm should shut down in the short run to minimize its losses.

A Profit-Maximizing Firm Should Shut Down in the Short Run