Asked by allison brockington on May 01, 2024
Verified
If a firm cannot cover its variable costs,it will
A) operate in the short run and stay in business in the long run.
B) operate in the short run and go out of business in the long run.
C) shut down in the short run and stay in business in the long run.
D) shut down in the short run and go out of business in the long run.
Variable Costs
Expenses that change in proportion to the activity of a business, such as costs for raw materials or production volume.
Shut Down
A short-term decision by a firm to cease operations temporarily due to unfavorable market conditions.
- Recognize the conditions under which a firm decides to continue operations or shut down in the short run.
Verified Answer
AM
aaliyah mogajiMay 03, 2024
Final Answer :
D
Explanation :
If a firm cannot cover its variable costs, it will shut down in the short run because it will continue to incur variable costs even if it produces no output. In the long run, it will go out of business because it cannot sustain losses indefinitely.
Learning Objectives
- Recognize the conditions under which a firm decides to continue operations or shut down in the short run.