Explain the circumstances under which a firm will produce output while incurring a short-run loss, and the circumstances under which it will shut down while incurring a short-run loss
If a firm can cover its variable costs by operating, then it will continue operating in the short run, that is,
until it can change the quantity of fixed resources it uses. If it covers its variable costs and has money left to
apply towards its fixed costs, then it is better off operating because the owner(s) spend less money. If it just
exactly covers its variable costs, but has no money left to apply towards its fixed costs, then it is no worse
off than if it shut down in the short run. However, if it can't cover its variable costs, then the owner(s)
incur both fixed costs and the uncovered component of the variable costs by operating. In this case, it is
preferable to shut down and only incur its fixed costs.
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