In the short run, if a firm is not earning very much economic profit, what should it do?

• A. Discontinue operations
• B. Pivot to new products
• C. Continue to operate
• D. Increase prices immediately

Answer: (C)

In the short run, some costs are fixed and cannot be changed, while others vary with how much you produce. The key decision is whether the revenue from selling output covers the variable costs. If the firm can cover its variable costs with the revenue from production, it should keep operating because producing at least contributes to fixed costs and reduces losses compared with shutting down.

Therefore, even if economic profit is small or negative, continuing to operate is the rational choice as long as price is enough to cover average variable costs. Shutting down would eliminate all revenue and still incur fixed costs, making losses bigger. Increasing prices immediately is often not feasible in the short run, and pivoting to new products is a longer-term strategic move, not a short-run fix.