A firm will continue to produce in the short run even though economic profits are negative as long as

Question

Quizplus · Accepted Answer

A firm will continue to operate in the short run as long as it can cover its variable costs, even if it cannot cover its total costs. This is because, in the short run, fixed costs are sunk costs and do not affect the decision to produce. The firm will incur its fixed costs regardless of whether it produces or not, so it will continue to produce as long as it can cover its variable costs and contribute something towards its fixed costs, even if it is making a loss.

A Firm Will Continue to Produce in the Short Run