Question

If the firm decides to shutdown in the short-run, which of the following conditions will be true? (check all that apply)

Group of answer choices

A.price is less than average cost

B.total revenue is less than total variable cost

C.producer surplus is negative

D.price is less than average variable cost

Answer 1

Answer :

B.total revenue is less than total variable cost

D.price is less than average variable cost.

Explanation :

The both sentence above are same. Because if we devide total revenue by quantity we get price and if we devide total variable cost by quantity we get average variable cost.

When price is below average variable cost, firm will shutdown. Because it is not covering its variable cost. When firm will operate when price is less than average variable cost, its loss will be equal to fixed cost and some portion of variable cost. But when it will shutdown, it loss will be equal to only fixed cost. So firm will shutdown.