A firm finds that at its MR = MC output, its TC = $1,000, TVC = $800, TFC = $200, and total revenue is $900. This firm should
A) shut down in the short run.
B) produce because the resulting loss is less than its TFC.
C) produce because it will realize an economic profit.
D) liquidate its assets and go out of business.

Question

Quizplus · Accepted Answer

The firm should produce in the short run because its total revenue ($900) covers its variable costs ($800) and contributes towards its fixed costs ($200). Although the firm is experiencing a loss, it is better than shutting down in the short run because it would still have to pay its fixed costs (TFC) even if it shuts down. By producing, the firm would at least be able to cover a portion of its fixed costs and minimize its losses.

A Firm Finds That at Its MR = MC Output