In the long-run, a firm must shut down if its average revenue is

In the long-run, a firm must shut down if its average revenue is

  1. greater than average cost
  2. less than average variable cost ✓
  3. equal to the minimum average revenue is
  4. equal to the average cost

Explanation

A firm must shut down if it cannot cover variable costs. These are costs that change with production like wages and materials.

If revenue does not cover variable costs, the firm loses money on every unit made. Continuing makes losses worse.

In the long run, firms need to cover all costs. But in the short run, covering variable costs is the minimum.