Question

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

Answer 1

In the short run, a perfectly competitive firm will always shut down if total revenue is less than variable cost at all positive output levels.

Explanation:

In the perfect competitive market, firms face the critical situation of the shut down when the firms unable to control the variable cost which includes labor costs, production, and other utility costs. The level of obtaining the low profit can be caused due to the following factors like ineffective management decisions, low sales volumes, market risks and the lack of cordial relations with other countries with respect to the trading of import and export of all goods.

When the operational expenses of the sunk cost (nonrecoverable cost) and the overhead cost in the short-run period are not able to control the efficiency of bridging the gap between the profit and the sales margin in all the conditions of all positive output levels.