Question

A firm may undertake production even in a state of losses. Comment.

Answer 1

The equilibrium of a firm occurs when $MR=MC$ and $MC$ is rising. In state of losses, $TR<TC$ or $AR<AC$, however, the firm may still be able to attain equilibrium at $MR=MC$. Production, in this case, continues in the short run as long as variable costs are being covered. Total losses in this case would be limited to the total fixed costs of the firm, which it will still have to bear in the short run even if the it stops production.