George and Dick's used car lot has a total revenue of $5 million,fixed costs of $8 million,and variable costs of $6 million.In the short run the firm will _,and in the long run it will _.

A) shut down;go out of business
B) shut down;stay in business
C) operate;stay in business
D) operate;go out of business

Question

George and Dick's used car lot has a total revenue of $5 million,fixed costs of $8 million,and variable costs of $6 million.In the short run the firm will _______,and in the long run it will _______.

A) shut down;go out of business
B) shut down;stay in business
C) operate;stay in business
D) operate;go out of business

Karus Shiki · Accepted Answer

Final Answer : A, Explanation :  In the short run, if total revenue does not cover variable costs, a firm will shut down to minimize losses. Here, total revenue ($5 million) is less than variable costs ($6 million), so the firm will shut down in the short run. In the long run, if total revenue does not cover both variable and fixed costs, the firm will go out of business. Since total revenue ($5 million) is less than the sum of fixed ($8 million) and variable costs ($6 million), the firm will go out of business in the long run.

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