"I'm losing money, but with my investment in equipment I can't afford to shut down at this time." If this entrepreneur is attempting to maximize profits, his behavior is:

Question

Quizplus · Accepted Answer

The entrepreneur's behavior is rational if the firm is covering its variable costs because, in the short run, as long as the revenue covers the variable costs, the firm can continue operating to contribute to fixed costs and minimize losses. Fixed costs are incurred regardless of production level, so shutting down would not save these costs in the short term.

"I'm Losing Money, but with My Investment in Equipment I