In the short term, you should keep your business open if you can cover your variable costs even if you cannot cover your total costs. This is true because: A. In this case price must be greater than average total cost.

B. Shutting down the business will save you money.

C. You should always ignore sunk costs (like a lease).

D. The statement above is false, you should always shut down if are loosing money in the short run.

Question

In the short term, you should keep your business open if you can cover your variable costs even if you cannot cover your total costs. This is true because:  	 	A.  	 In this case price must be greater than average total cost.
 
 	 	B.  	 Shutting down the business will save you money.
 
 	 	C.  	 You should always ignore sunk costs (like a lease).
 
 	 	D.  	 The statement above is false, you should always shut down if are loosing money in the short run.

anonymous · Answer

I would go with A.
Because I know that shutting down the business (b) may or may not save you money (as income is no longer incurred and you no longer have the means to save)
Because you can not ignore sunk costs in your calculations (such as a lease)
And it's not a false statement, as if you are incurring high private costs in the short-run, you also should not shut down, as they can be paid off in the long term with the profits.