Pearson eText Microeconomics -- Instant Access (Pearson+)
Pearson eText Microeconomics -- Instant Access (Pearson+)
9th Edition
ISBN: 9780136879572
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON+
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Chapter 8, Problem 1RQ
To determine

Identify why a firm that incurs losses choose to produce rather than shut down.

Expert Solution & Answer
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Explanation of Solution

The economic loss is a situation that occurs when the total revenue of the firm is less than the total cost of the firm. However, the firms will be ready to accept the losses rather than shut down in the short run. This is because the total cost is the sum total of variable cost and the fixed cost. In the short run, if the total revenue is greater than the variable cost and less than the total cost of the firm, then the losses incurred by the firm would be minimized. Thus, even though the firm faces loss in the short run, it would operate rather than shut down the production.

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