If a firm is confronted with economic losses in the short run, it will decide wh

Question

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing: 36. (a) marginal revenue and marginal cost (b) total revenue and total variable cost (c) total revenue and total cost (d) total revenue and total fixed cost A firm finds that at its MR = MC output, its TC = $1000, TVC-$800, TFC = $200, and total revenue is $900. This firm should: 37. (a) close 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

Explanation / Answer

Question 36

In short-run, if a firm is able to recover its total variable cost then it will continue its operation even though it is not able to recover its fixed cost and is incurring an economic loss.

So, in order to determine whether or not to produce while incurring economic losses in short-run, firm should compare total revenue and total variable cost.

If total revenue is greater than the total variable cost, firm will continue to operate otherwise not.

The correct answer is the option (b).

Question 37

In short-run, if a firm is able to recover its total variable cost then it will continue its operation even though it is not able to recover its fixed cost and is incurring an economic loss.

So, in order to determine whether or not to produce while incurring economic losses in short-run, firm should compare total revenue and total variable cost.

If total revenue is greater than the total variable cost, firm will continue to operate otherwise not.

In the given case, total revenue is greater than the total variable cost. So, firm is not only been able to recover its variable cost but also a part of its fixed cost. So, it must remain in operation.

If it shut down then its loss will be greater (equal to entire amount of TFC).

So, this firm should produce because the resulting loss is less than its TFC.

The correct answer is the option (b).

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.