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

1. Analyze the question The question asks when a firm must shut down. The wording says "long-run", but the options refer to average variable cost (AVC), which is the standard shutdown condition.

2. Explain the concept

• Short run: Fixed costs must be paid whether or not the firm produces. The firm keeps operating as long as average revenue (AR, the price) covers average variable cost (AVC). If AR < AVC, it loses more by producing than by closing, so it shuts down.
• Long run: All costs are variable. A firm that cannot cover its average cost (AR < AC) will exit the industry. Strictly, then, the long-run exit condition is AR < AC.

3. Evaluate the options

• A. AR greater than AC: The firm makes supernormal profit, so it stays. ✗
• B. AR less than AVC: The classic shutdown condition. Revenue cannot even cover variable costs. ✔ (Since AVC ≤ AC, a firm with AR < AVC is also below AC, so it must leave in the long run too.)
• C. "Equal to the minimum average revenue is": This is meaningless and badly worded. ✗
• D. AR equal to AC: The firm earns normal profit, which is the long-run equilibrium. It stays. ✗

4. Answer Option B is the only choice that describes a firm that must shut down. A note on the wording: a purist would say the long-run condition is AR < AC, and that is not offered as an option.

5. Tip Remember this pair:

• Short run: shut down if AR < AVC
• Long run: exit if AR < AC

When an option mentions "average variable cost" together with "less than", it is usually the shutdown answer.