Under what condition will a firm cease production and produce nothing in the short term?

Show Answers

When the price exceeds the short-run average total costWhen the price lies between the short-run average total cost and average variable costWhen the price falls below the short-run average variable costWhen the firm breaks even and earns zero profit

Explanation

A firm will stop producing in the short run if the market price is lower than the short-run average variable cost, as continuing production would lead to greater losses than shutting down. If the price is above average variable cost, the firm will continue to produce even if profits are negative, because it can cover some fixed costs.