When total revenue is less than variable costs, a firm in a competitive market will
A)continue to operate as long as average revenue exceeds marginal cost.
B)continue to operate as long as average revenue exceeds average fixed cost.
C)shut down.
D)raise its price.

Question

Quizplus · Accepted Answer

When total revenue is less than variable costs, it means the firm is not covering its variable costs and is incurring losses. In such a situation, the firm would not be able to cover its fixed costs and would operate at a bigger loss. Thus, the best option for the firm would be to shut down rather than continue to incur losses.

When Total Revenue Is Less Than Variable Costs, a Firm