If total revenue is greater than variable cost but less than total costs, the firm should
A)remain in operation because revenues are sufficient to cover variable costs and some fixed costs.
B)shut down because revenue is not sufficient to cover all costs.
C)not make any decisions until it hires an economist.
D)remain in operation because revenue is sufficient to cover all fixed costs.
E)shut down because P is less than ATC.

Question

Quizplus · Accepted Answer

If total revenue is greater than variable cost, the firm is making a contribution towards covering its fixed costs. Therefore, if total revenue is less than total costs but greater than variable costs, the firm should continue operating in the short run as it is still covering some of its fixed costs. Shutting down would result in the firm not covering any fixed costs and incur losses equal to the fixed costs. Therefore, remaining in operation is the best option.

If Total Revenue Is Greater Than Variable Cost but Less