Which of the following statements is correct? A) In the short run, if a firm chooses...

Which of the following statements is correct?

A) In the short run, if a firm chooses to produce no output (i.e., shut down) its total costs of production will equal its total fixed costs.

B) A firm minimizes its total costs of production when average variable cost is minimized.

C) If a firm decides to shut down, its short-run total costs will equal 0.

D) As a firm increases output in the short run, the change in total costs is equal to the change in total variable costs.

Expert Solution

In the short run, a firm will shut down when it is unable to cover it's variable costs, that is, only if it's price < Average variable cost, at the profit maximizing output level. However, as a firm increases output in the short run, the change in total costs is equal to the change in total variable costs(because fixed cost is a cost that remains constant. It doesn't change with change in output).

Answer: option D

Rahul Sunny answered 2 years ago

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