Asked by Cynthia Frias on Jun 10, 2024
Verified
A purely competitive firm should produce in the short run if its total revenue is sufficient to cover its
A) total variable costs.
B) total costs.
C) total fixed costs.
D) marginal costs.
Total Variable Costs
The sum of all costs that vary with the level of output, including costs for raw materials, labor, and other expenses that change with production volume.
Purely Competitive
A purely competitive market is characterized by many buyers and sellers, homogeneous products, and no barriers to entry or exit, leading to price taking behavior by firms.
- Assess the conditions under which a purely competitive firm will continue production or shut down in the short run.
- Analyze the impact of fixed and variable costs on a firm's production decisions.
Verified Answer
KB
khadijah brunsonJun 12, 2024
Final Answer :
A
Explanation :
A purely competitive firm should continue to produce in the short run as long as its total revenue is enough to cover its total variable costs, even if it's not covering its total fixed costs. This is because, in the short run, fixed costs are sunk and unavoidable, whereas variable costs are incurred with each unit of production. If the firm can cover its variable costs, it can contribute to fixed costs and potentially minimize losses.
Learning Objectives
- Assess the conditions under which a purely competitive firm will continue production or shut down in the short run.
- Analyze the impact of fixed and variable costs on a firm's production decisions.