A firm is seeing a $500 loss in the short run.The fixed cost of operation for this firm is $1,000.What is the best decision for this firm in the short run?

Question

Quizplus · Accepted Answer

In the short run, a firm should continue production as long as the revenue from producing exceeds the variable cost of production. In this case, the firm's fixed costs will be incurred regardless of whether or not the firm produces any output. Therefore, it is best for the firm to continue producing since the total revenue from production will contribute to paying off some of the fixed costs. Shutting down production will only lead to a loss of revenue and the fixed costs will still need to be paid. Therefore, the best option is for the firm to not shut down production.

A Firm Is Seeing a $500 Loss in the Short