Q142
A firm should shut down in the short run if it is not covering its
A.
Variable cost
AnswerB.
Fixed cost
C.
Total cost
D.
Explicit cost (money outlays)
Answer: Option A
Solution
Answer: Option A
Solution:
A firm should shut down in the short run if it is not covering its Variable cost. In the short run, a firm that is operating at a loss (where the revenue is less that the total cost or the price is less than the unit cost) must decide to operate or temporarily shutdown. The shutdown rule states that “in the short run a firm should continue to operate if price exceeds average variable costs. ”