In the short run, when a profit-maximizing, perfectly competitive firm is producing at the quantity where MR = MC and the firm’s total revenue is less than its total variable cost, the firm should

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In the short run, when a profit-maximizing, perfectly competitive firm is producing at the quantity where  MR = MC and the firm’s total revenue is less than its total variable cost, the firm should

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Question restatement: In the short run, for a profit-maximizing, perfectly competitive firm producing at MR = MC, if total revenue is less than total variable cost, what should the firm do?

Option 1: lower its price. In perfect competition, the firm faces a perfectly elastic demand, so it cannot lower price and still keep MR = P; lowering price would reduce price without changing MC in the MR = MC condition, leading to lower profit or higher losses, and it does not address the condition TR < TVC. This option ignores the incentive to shut down when producing would incur variable losses.

Option 2: expect other firms to enter the industry. In the short run for a perfectly competitive firm, entry affects long-run supply, not the immediate decision when MR = MC and TR < TVC. Since the scenario is about the firm’s current production decision, this option misreads the time frame and the impact of entry on current costs and revenue.

Option 3: continue to produce the same quantity. If TR < TVC at the current output, the firm is incurring losses that exceed its fixed costs. Since fixed costs are sunk in the short run, the firm should not continue producing at a loss that does not cover variable costs; continuing production would worsen losses relative to shutting down.

Option 4: raise its price. A perfectly competitive firm cannot raise price without losing all its sales because it is a price taker; it cannot influence market price by changing its own output. Therefore this option is infeasible in this market structure and does not resolve the condition TR < TVC.

Option 5: shut down. The shutdown decision in the short run is based on whether price covers average variable cost (P ≥ AVC). When TR < TVC at MR = MC, the firm’s revenue does not cover its variable costs, meaning it would minimize losses by ceasing production and incurring only fixed costs. This aligns with standard short-run shutdown logic for competitive firms.

Summary of reasoning: The core idea is that, in the short run, a firm should continue producing only if it can cover its variable costs (TR ≥ TVC). If not, producing would incur larger losses than shutting down, so the rational move is to shut down. The other options either misinterpret market structure constraints (price setting) or ignore the cost coverage condition, or rely on effects (entry) that do not affect the immediate shutdown decision.

AP Economics-Hillebrand Unit 3 Exam (2025) v1- Requires Respondus LockDown Browser

In the short run, when a profit-maximizing, perfectly competitive firm is producing at the quantity where MR = MC and the firm’s total revenue is less than its total variable cost, the firm should

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AP Economics-Hillebrand Unit 3 Exam (2025) v1- Requires Respondus LockDown Browser

In the short run, when a profit-maximizing, perfectly competitive firm is producing at the quantity where MR = MC and the firm’s total revenue is less than its total variable cost, the firm should

查看解析

登录即可查看完整答案

类似问题

Assume that, for a perfectly competitive firm, marginal cost equals average variable cost at $10, marginal cost equals average total cost at $15, and marginal revenue equals marginal cost at $12. On the basis of this information, the firm should

Suppose a profit-maximising firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs. In the short run it should:

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ Refer to Figure 14-1. If the market price falls below $6, the firm will earn

We know this firm is operating in the shortrun as it has both variable and fixed costs. At a quantity of 4, what is the minimum price this firm must receive before it would shutdown.

Figure 14-1Suppose that a firm in a competitive market has the following cost curves:​Refer to Figure 14-1. The firm should shut down if the market price is

Consider the graph below. If the price facing this firm was $2, what would their profits be? Note: if the firm would be better off shutting down than producing, the answer should be 0 (zero). Profit = _____

Figure 15-1Suppose that a firm in a competitive market has the following cost curves:Refer to Figure 15-1. If the market price is $5, the firm will earn

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更多留学生实用工具

希望你的学习变得更简单

Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: Refer to Figure 14-1. If the market price falls below $6, the firm will earn

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