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In the short run, A- all firms that earn a loss will shut down B- if...

In the short run, A- all firms that earn a loss will shut down B- if earning a profit, new firms will enter industry C- act to minimize losses or maximize profits D- all of the above

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Answer #1

The answer should be C. In the short run, the objective of the firm is to maximise profit or minimise loss.

The first point A is not correct. Firms incurring losses will not shut down unless the revenue earned is not able to cover even the fixed costs of production. Price will have to be less than the average variable cost for the firm to shutdown while price will have to be less than average total cost for the firm to incurr a loss.

The second point B : New firms only respond to profit earned by current firms, in the long run. Hence statement is not correct.

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