Difficulty: Easy

Average Score: 100%

When is it best for a firm to restart production?

Rationale

When total variable costs are less than the total revenue after a short term stop.

Restarting production is optimal when total variable costs are less than total revenue, as this scenario ensures that the firm can cover its variable costs and contribute positively to fixed costs, ultimately maximizing profitability in the short run.

A (When total variable costs are less than the total revenue after a short term stop) CORRECT

This choice accurately reflects the condition under which a firm should restart production. If total variable costs are lower than total revenue, the firm can generate enough income to cover its ongoing costs, thereby improving its financial situation during the production phase.

B (When total revenue is less than total cost) YOUR ANSWER

This option indicates a loss-making scenario, where the firm's revenue does not cover all its costs. Restarting production under these circumstances would exacerbate financial losses, making it an ill-advised decision.

C (When marginal cost is greater than marginal revenue) YOUR ANSWER

This situation signifies that producing an additional unit would lead to higher costs than the revenue generated from that unit. Restarting production in this case would decrease overall profitability, as the firm would be incurring losses with each additional unit produced.

D (When total cost is greater than total revenue) YOUR ANSWER

This choice describes a situation where the firm is operating at a loss, as its expenses exceed its income. Restarting production in such a case would not be sensible, as it would further increase losses without addressing the fundamental issue of insufficient revenue.

Conclusion

The decision to restart production should hinge on the relationship between total variable costs and total revenue. When the revenue exceeds variable costs, it allows the firm to remain viable and contribute to fixed costs, enhancing profitability. Other scenarios, such as when costs outstrip revenue, indicate a need for caution and strategic reassessment rather than immediate resumption of production.

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