A profit-maximizing firm should shut down in the short run if: Answer choices: price is greater...

A profit-maximizing firm should shut down in the short run if:

Answer choices:

price is greater than marginal cost.

total revenue is less than total variable cost.

the firm is earning less than a normal rate of return.

the firm is not able to cover its overhead expenses.

marginal cost is higher than average cost.

Solutions

Expert Solution

Option B

A firm earns profits as long as its price exceeds Average variable costs or equals it.
Only when this condition is satisfied , the firm can continue to operate in the short run.
When the total revenue starts to fall below the variable cost then the firm will no longer earn economic profits.
This will no longer allow them to operate in the market and hence the profit maximizing firms should shut down.

Rahul Sunny answered 1 year ago

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