Question : If a firm is operating at a loss in the short period in perfect combination, it should:
Option 1: decrease the production and price
Option 2: increase the production and price
Option 3: continue to operate as long as it covers even the variable costs
Option 4: shut down and leave the industry
Correct Answer: continue to operate as long as it covers even the variable costs
Solution : The correct answer is to continue to operate as long as it covers even the variable costs .
A firm should keep operating, even if it's losing money, as long as it covers the costs that change with production (like materials or labour). This is because there are fixed costs (like rent and salaries) that the firm can't avoid. If it shuts down, it still has to pay these fixed costs but won't make any money. So, it's better to keep going, even if it means a short-term loss.
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