Question

A firm suffering economic losses decides whether or not to produce in the short run on the basis of whether:_________

a. revenues from operating are sufficient to cover fixed plus variable costs
b. firms suffering economic losses will always shut down
c. Price cover minimum variable costs
d. revenues from operating are sufficient to cover fixed costs

Answer 1

C

Step-by-step explanation:

A firm is making economic losses if opportunity cost is greater than accounting profit.

In the short run, a firm should shut down if price is less than variable cost.

A short run is the period where all the factors of production are fixed

Fixed costs are costs that do not vary with output. e,g, rent, mortgage payments

If production is zero or if production is a million, Mortgage payments do not change - it remains the same no matter the level of output.

Hourly wage costs and payments for production inputs are variable costs

Variable costs are costs that vary with production

If a producer decides not to produce any output, there would be no need to hire labour and thus no need to pay hourly wages.