Question

In the short run, a firm experiencing a loss has two choices. What are the two choices?

1) Increase production and lower prices
2) Decrease production and raise prices
3) Shut down temporarily and reduce costs
4) Continue operations and hope for improvement

Answer 1

The two choices for a firm experiencing a loss in the short run are:

3) Shut down temporarily and reduce costs

4) Continue operations and hope for improvement

Step-by-step explanation:

Shut down temporarily and reduce costs: This option involves temporarily halting production to minimize losses and cutting costs during the period of shutdown. By doing so, the firm aims to weather the current financial challenges and resume operations when conditions improve.

Continue operations and hope for improvement: Alternatively, the firm may choose to persist with its operations, anticipating a future improvement in market conditions. This strategy relies on the belief that the losses incurred in the short run will be offset by better prospects in the near future.

It's essential for the firm to carefully assess its specific circumstances and make a strategic decision based on factors such as market conditions, production costs, and the potential for future recovery.