Considering production decisions for only the short run, a firm producing where MC = MR should stop producing if
A) its losses are less than TFC
B) its losses equal TFC
C) its losses are greater than TFC
D) TR is less than TC
E) TR exceeds TVC

Question

Quizplus · Accepted Answer

DIn the short run, a firm should continue producing as long as the revenue from producing (marginal revenue, MR) is equal to the marginal cost (MC) of producing another unit, provided it can cover its variable costs. The decision to stop producing is based on whether the firm can cover its total variable costs (TVC) and how its losses compare to its total fixed costs (TFC). A firm should stop producing if its losses are greater than its total fixed costs (C) because continuing to produce would mean the firm is not even covering its variable costs, leading to greater losses than if it were to shut down. Additionally, if total revenue (TR) is less than total cost (TC) (D), the firm is not covering its total costs (fixed plus variable), indicating it might be better off ceasing production in the short run to minimize losses.

Considering Production Decisions for Only the Short Run, a Firm