When determining whether to shut down in the short run, a competitive firm should ignore (i)
Fixed costs.
(ii)
Variable costs.
(iii)
Sunk costs.
A)(iii) only
B)(i) and (iii) only
C)(ii) only
D)(i), (ii), and (iii)

Question

Quizplus · Accepted Answer

In the short run, a firm should ignore fixed costs and sunk costs when deciding to shut down, as these costs do not change with the level of output and cannot be recovered. The decision should be based on whether the revenue covers the variable costs.

When Determining Whether to Shut Down in the Short Run