Two firms in a local shopping center are losing money. Firm A has high fixed costs and relatively low variable costs. Firm B has low fixed costs and relatively high variable costs. Would you expect firm A to continue operating in the short run, despite losing money? Explain your answer. Would you expect firm B to continue operating in the short run, despite losing money? Explain your answer. Would you expect either firm to continue operating in the long run, despite losing money? Explain why a firm that is losing money would exit the market in the long run, despite continuing to operate in the short run.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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  1. Two firms in a local shopping center are losing money. Firm A has high fixed costs and relatively low variable costs. Firm B has low fixed costs and relatively high variable costs.
    1. Would you expect firm A to continue operating in the short run, despite losing money? Explain your answer.
    2. Would you expect firm B to continue operating in the short run, despite losing money? Explain your answer.
    3. Would you expect either firm to continue operating in the long run, despite losing money? Explain why a firm that is losing money would exit the market in the long run, despite continuing to operate in the short run.
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