[amp_mcq option1=”Variable cost” option2=”Fixed cost” option3=”Total cost” option4=”Explicit cost (money outlays)” correct=”option1″]<\/p>\n
The correct answer is: A. Variable cost.<\/p>\n
A firm should shut down in the short run if it is not covering its variable cost. This is because variable costs are the costs that a firm incurs in the short run that vary with the level of output. If a firm is not covering its variable costs, then it is losing money on each unit that it produces. In the short run, a firm cannot change its fixed costs, so it cannot reduce its losses by producing less. The only way to stop losing money is to shut down production.<\/p>\n
Fixed costs are the costs that a firm incurs in the short run that do not vary with the level of output. These costs include things like rent, salaries, and insurance. Even if a firm is not producing anything, it still has to pay these costs. Therefore, fixed costs are not relevant to the decision of whether or not to shut down in the short run.<\/p>\n
Total cost is the sum of variable cost and fixed cost. If a firm is not covering its total cost, then it is losing money. However, in the short run, a firm cannot change its fixed costs, so it cannot reduce its losses by producing less. The only way to stop losing money is to shut down production.<\/p>\n
Explicit costs are the costs that a firm incurs that require a direct outlay of money. These costs include things like wages, rent, and materials. Implicit costs are the costs that a firm incurs that do not require a direct outlay of money. These costs include things like the opportunity cost of capital and the opportunity cost of management time. Implicit costs are not relevant to the decision of whether or not to shut down in the short run.<\/p>\n","protected":false},"excerpt":{"rendered":"
[amp_mcq option1=”Variable cost” option2=”Fixed cost” option3=”Total cost” option4=”Explicit cost (money outlays)” correct=”option1″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-57074","post","type-post","status-publish","format-standard","hentry","category-economics","no-featured-image-padding"],"yoast_head":"\n