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According to the source, why might a firm continue producing at a loss in the short run instead of shutting down immediately?
AVariable costs are always higher than fixed costs
BThe government requires all firms to keep producing
CIt has already paid for fixed costs like equipment either way
DFixed costs disappear the moment the firm decides to shut down
Answer & Solution
Correct answer: C. It has already paid for fixed costs like equipment either way
1. Fixed costs, like equipment already purchased, are sunk in the short run whether or not the firm produces.
2. Since those costs must be paid either way, the firm may still choose to keep producing even while losing money.
3. Shutting down does not make fixed costs disappear; the source discusses this exact point when it explains the shutdown decision.
4. Nothing in the source ties this decision to a government production mandate.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 8 "Perfect Competition", section 8.2 | How Perfectly Competitive Firms Make Output Decisions_
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