Asked by Dawson Lewis on Jul 25, 2024
Verified
Which of the following represents the firm's short-run condition for shutting down?
A) Shut down if TR < TC
B) Shut down if TR < FC
C) Shut down if P < ATC
D) Shut down if TR < VC
Short-Run Condition
A period in which at least one input is fixed and firms cannot fully adjust to new market conditions.
Shutting Down
A short-term decision by a firm to cease production when the market price is below variable costs, incurring losses only equal to fixed costs.
Total Revenue
The overall amount of money generated by a business from the sale of its goods or services.
- Comprehend the circumstances under which a firm ceases operations and the significance of fixed and variable expenses.
Verified Answer
FW
Fatima WelchJul 27, 2024
Final Answer :
D
Explanation :
In the short run, a firm should shut down if the total revenue (TR) it generates is less than its variable costs (VC). This is because, in the short run, fixed costs (FC) are sunk costs and cannot be recovered. Therefore, the decision to shut down is based on whether the firm can cover its variable costs with its revenue. If it cannot, it minimizes its losses by not operating.
Learning Objectives
- Comprehend the circumstances under which a firm ceases operations and the significance of fixed and variable expenses.