Question

When total revenues fall below total costs, production should end. However, if marginal revenue exceeds variable cost, production should continue in the short run to help defray fixed costs.
a. True
b. False

Answer 1

Answer:

False

Explanation:

A firm should end production and shut down only when its total revenue falls below variable costs, because at this point, production will bring about more losses, compared to if the company isn't producing at all.

If total revenue exceeds and can cover its variable cost, a firm should remain in operation in the short run (even if it is incurring losses), as this contributes to paying off the firm's fixed costs.