Economics Short Run Vs Long Run Costs Questions
In the short run, average revenue plays a crucial role in a firm's decision-making process. It helps the firm determine whether to continue producing or shut down temporarily. If the average revenue exceeds the average variable cost, the firm will continue producing as it is covering its variable costs and making a profit. However, if the average revenue falls below the average variable cost, the firm will shut down temporarily to minimize losses. Therefore, average revenue guides the firm's decision on whether to produce or shut down in the short run.