Question

Consider the statement: "Even if a firm is losing money, it may be better to stay in business in the short run." This statement is true, if the loss is less than variable costs. false, because it could be better to stay in business in the long run. false, because a firm should only operate if it is making money. true, if the loss is less than fixed costs. b. The firm should produce in the short run as long as price is less than the average fixed cost. exceeds the average variable cost. is less than the average variable cost. exceeds the average fixed cost.

Answer 1

Answer:

if the loss is less than fixed costs

Price exceeds the average variable cost.

Explanation:

If a business is making losses and wants to shut down operations, it will need to keep paying the fixed cost component.

In a case where the loss made from running the business is less than the fixed cost that will be incurred, it is better for the business to keep producing in the short run. The cost of closing up will be higher.

Also the business should stay open if the price of a product is higher than its average variable cost. This is because as production increases the positive contributing margin will eventually exceed cost incurred. This can be achieved by scaling production upward.