Figure 10.2 shows a firm that charges price P* for output q*. In order to minimize loss in the short run, the firm should:
Figure 10.2.

Question

Figure 10.2 shows a firm that charges price P* for output q*. In order to minimize loss in the short run, the firm should:​ ​
Figure 10.2.
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Quizplus · Accepted Answer

In the short run, a firm should continue to produce if the price of its product is greater than the average variable cost (AVC). In this case, the firm's price is greater than its AVC, so it should continue to produce in order to minimize its losses. If the firm were to shut down, it would still have to pay its fixed costs but would not be able to cover any of its variable costs, leading to greater losses. Therefore, the firm should continue to produce at q* and minimize its losses in the short run.

Figure 102 Shows a Firm That Charges Price P* for Output