Answer to Question #46342 in Microeconomics for irfan

Question

Can a firm continues its operation in the short run despite losing? Explain.

Answer 1

Yes, if firm adheres to the rules of acceptable loss, that assumes losses which do not exceed the sum of the fixed costs. In this case, the firm operates in choosing the optimal level of production to minimize its losses, where MR (marginal revenue) = MC (marginal costs).