Question

firms earning a loss will sometimes shut down in the short run. what quantity will the firm produce if it shuts down in the short run? what will the profits be if this firm shuts down?

Answer 1

If a firm is earning a loss in the short run, it will choose to shut down and produce zero output

What is firms earning?

If a firm shuts down in the short run due to incurring losses, it produces zero quantity. In the short run, the firm can minimize losses by covering variable costs alone, as fixed costs persist regardless of production. If shutting down minimizes losses compared to continuing operations, the firm's profits, or more accurately losses, would equal its total fixed costs.

So, This decision is guided by the principle that it's better to bear variable costs alone than to cover both variable and fixed costs when facing insufficient revenue, helping the firm mitigate short-term financial challenges.