When price is sufficient to cover average variable costs, firms suffering short-run losses will continue to operate rather than shut down.

Question

Quizplus · Accepted Answer

In the short run, as long as the price covers the average variable costs, firms will continue to operate to cover at least a portion of their fixed costs, even if they are incurring losses, because shutting down would result in a loss equal to the total fixed costs.

When Price Is Sufficient to Cover Average Variable Costs, Firms