Why might a firm continue to produce at a loss?

As long as the loss is less by operating than by stopping production the firm will continue to produce even though it is incurring a loss; that is, total revenue is greater than total variable cost, but total revenue is less than total cost. Firms do not earn a profit at all times.

Should the firm produce or shut down?

Conventionally stated, the shutdown rule is: “in the short run a firm should continue to operate if price equals or exceeds average variable costs.” Restated, the rule is that to produce in the short run a firm must earn sufficient revenue to cover its variable costs.

Why would a firm continue to produce a product that it earns no profit on?

Why Do Competitive Firms Stay in Business If They Make Zero Profit? Profit equals total revenue minus total cost. Total cost includes all the opportunity costs of the firm. In the zero-profit equilibrium, the firm’s revenue compensates the owners for the time and money they expend to keep the business going.

Under what condition should a firm continue to produce in short run if it incurs losses at the best level of output?

A business should continue to produce in the short run even while it incurs loss. The reason for this is that as long as the prices of the product exceed the average variable cost (AVC), the firm should continue to operate.

Where does a firm minimize losses?

A rule stating that a firm minimizes economic loss by producing output in the short run that equates marginal revenue and marginal cost if price is less than average total cost but greater than average variable cost. This is one of three short-run production alternatives facing a firm.

When should a firm shutdown?

For a one-product firm, the shutdown point occurs whenever the marginal revenue drops below marginal variable costs. For a multi-product firm, shutdown occurs when average marginal revenue drops below average variable costs.

When a monopolist incurs a loss in the short run it will stop producing if?

In the short-run, a monopolist firm cannot vary all its factors of production as its cost curves are similar to a firm operating in perfect competition. Also, in the short-run, a monopolist might incur losses but will shut down only if the losses exceed its fixed costs.