Question

QUESTION 31 at all positive output levels. In the short run, a perfectly competitive firm will always shut down if total revenue is a. less than total cost but greater than variable cost b. less than variable cost c. less than total cost but greater than fixed cost d. greater than fixed cost

Answer 1

In short-run, a perfectly competitive firm shuts down the production if the Price is less than the average variable cost (AVC).

It means if P < AVC then the firm will shut down the production.

it implies if Total revenue < TVC then the firm will shut down the production.

Note: Total revenue = P * Q

TVC = AVC * Q

Answer: Option (B).

Shut down if total revenue is less than the variable cost at all positive output level.