Final answer:
The statement that a firm might stay in business in the short run despite making losses is true if the loss is less than variable costs. This is because in the short run fixed costs are sunk and firms will aim to cover variable costs at a minimum. However, persisting losses may lead to exit in the long run.
Step-by-step explanation:
Regarding the statement "Even if a firm is losing money, it may be better to stay in business in the short run," the correct answer is 2) True, if the loss is less than variable costs. This concept is linked to the shutdown point, where a firm decides whether to continue production or to shut down. A firm may choose to operate at a loss if its total revenues cover its variable costs and contribute to fixed costs.
Operating at a loss may be a viable short-term strategy, especially since fixed costs are sunk in the short run and cannot be recovered by shutting down. However, if losses persist in the long run, the firm may decide to exit the market to prevent further financial damages. This strategic decision-making process is critical for firms navigating difficult economic periods.