Final answer:
A firm will continue production despite negative total profits when it can cover its variable costs, as this contributes to fixed costs and minimizes losses compared to a complete shutdown.
Step-by-step explanation:
A firm may opt to continue producing output even when it is incurring losses because of the concept of the shutdown point. The shutdown point refers to the situation where a firm must decide whether to continue producing or to stop operations and shut down completely. The deciding factor lies in whether the firm can cover its variable costs through production. If a firm shuts down, it cannot avoid its fixed costs, which are already incurred and need to be paid regardless of the level of production. However, if the price at which the firm can sell its product is equal to or greater than the marginal cost, meaning it can cover variable costs, then it has an incentive to keep producing to minimize losses. Therefore, a firm will continue producing output to cover variable costs and contribute to fixed costs, even if it doesn't achieve overall profitability in the short term.