Question

Will a firm continue to produce even if it is incurring losses under perfect competition? Explain.

Answer 1

No, in the long run a firm will not operate if it is incurring losses.
Yes in the short run. In the short run, a firm continues to cope with losses so long as $AR\ge AVC$, because, by covering variable costs, the firm is incurring the loss of fixed cost only which it has to incur even when production is discontinued.