In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if
A)price is less than average total cost.
B)price is greater than average total cost.
C)average revenue is greater than average fixed cost.
D)average revenue is greater than marginal cost.

Question

Quizplus · Accepted Answer

If all of a firm's costs are variable in the long run, then there are no fixed costs to be concerned about. Therefore, the firm should only continue to operate if it can cover its variable costs. If price is less than average total cost, then the firm is not generating enough revenue to cover all of its costs, both variable and fixed. Therefore, the firm should shut down in order to minimize its losses.

In the Long Run, All of a Firm's Costs Are