Answer to Question #296882 in Microeconomics for Honey Grace

Question

19. Suppose a given firm operating in a perfectly competitively market.

TFC = birr 600

TVC = birr 500 and TR = birr 700.

Should the firm stay in the business? What will be you answer if the TR changes to birr 450?

Answer 1

As TR > TVC, then the firm can cover its variable costs and the firm should stay in the business.

If the TR changes to birr 450, then TR < TVC, so the firm should shut down.