In the short run, a competitive firm with economic losses will

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In the short run, a competitive firm facing economic losses will shut down if its marginal revenue falls short of its average variable cost. This is because continuing to operate under these conditions would lead to greater losses than the fixed costs of shutting down. Exiting the industry, entering another industry, or changing plant size are decisions more relevant to the long run when the firm can adjust all of its inputs.

In the Short Run, a Competitive Firm with Economic Losses