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Short-term

A generic firm can make three changes in the short-run:

Increase production

Decrease production

Shut down

In the short-run, a profit maximizing firm will:

Increase production if Marginal Cost is less than Price ;

Decrease production if Marginal Cost is greater than Price ;

Continue producing if Average Variable Cost is less than Price , even if Average Total Cost is greater than Price ;

Shut down if Average Variable Cost is greater than Price . Thus, the Fixed Cost is the largest loss a firm can incur in the short-run.

SEE ALSO

Long-run