Explain in your own words why in the short run a firm may continue to produce even at a loss provided the price is more than the average variable cost. Also, provide an example of when a firm might face this decision.

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31-12-2020
Business

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Explain in your own words why in the short run a firm may continue to produce even at a loss provided the price is more than the average variable cost. Also, provide an example of when a firm might face this decision.

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Vickiee Vickiee · Answer 1 · 2021-01-01T02:05:59+01:00

Answer: The firms are faced with two options, the first is covering variable cost, which they can consider in a short run, which they can pay some of their fixed cost. If they shut down completely they would pay all their fixed costs.

Explanation:

The firms are faced with two options, the first is covering variable cost, which they can consider in a short run, which they can pay some of their fixed cost. Alternatively, if they shut down completely they would pay all their fixed costs. As long as the operating cost is not much, they would keep working.