Asked by AIDAN ECCLESTON on Jun 23, 2024
Verified
A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should
A) shut down in the short run.
B) produce because the resulting loss is less than its TFC.
C) produce because it will realize an economic profit.
D) liquidate its assets and go out of business.
MR = MC Output
The condition where Marginal Revenue (MR) equals Marginal Cost (MC) represents the profit-maximizing level of output for a firm.
Total Variable Costs
The sum of all costs that vary with output level in the short term.
- Learn to ascertain a business's immediate economic outcomes, whether profit or loss, by evaluating total revenue and total costs.
- Evaluate the circumstances that determine whether a purely competitive firm will maintain operations or cease production in the short term.
Verified Answer
BG
Brittany GroenJun 30, 2024
Final Answer :
B
Explanation :
In the short run, a firm should continue to operate as long as it can cover its variable costs, even if it's incurring a loss. Here, the total revenue ($900) is greater than the total variable cost ($800), meaning the firm can cover its variable costs and part of its fixed costs. Shutting down would result in a loss equal to the total fixed costs ($200), which is greater than the current loss of $100 ($1000 total cost - $900 total revenue). Therefore, continuing to produce minimizes the firm's losses compared to shutting down.
Learning Objectives
- Learn to ascertain a business's immediate economic outcomes, whether profit or loss, by evaluating total revenue and total costs.
- Evaluate the circumstances that determine whether a purely competitive firm will maintain operations or cease production in the short term.