A firm may find it optimal to stay in business in the short run even if total revenue does not cover total cost.

Question

Quizplus · Accepted Answer

In the short run, a firm may continue to operate even if the total revenue is less than the total cost, as long as the firm is able to cover its variable costs and make some contribution towards its fixed costs. This is because shutting down the business in the short run may lead to further losses due to fixed costs that cannot be recovered.

A Firm May Find It Optimal to Stay in Business