"I'm losing money, but since my fixed costs are so high, I simply cannot afford to shut down." If the firm were attempting to maximize profit, this decision may be:

Question

Quizplus · Accepted Answer

In the short run, if the price of a product falls below the average variable cost, a firm should shut down. However, if the price is able to cover all the variable costs, it may still be able to cover a portion of the fixed costs, which would help the firm recover in the future. Therefore, if the firm is covering its variable costs and expects the price to rise in the near future, it may be reasonable to continue operating despite the current losses. This decision reflects a long-term perspective of maximizing profit rather than just minimizing losses.

"I'm Losing Money, but Since My Fixed Costs Are So