4. Firms must decide whether to produce or not Quantity of output firm will produce produce. a. If P > ATC (> AVC), the firm earns 50 100 125 140 (profit/loss) and Quantity (will continue to operate/shut down) in the short run. b. If P P > AVC, the firm earns (profit/loss) and (will continue to operate/shut down) in the short run because the alternative, (continuing to produce/shutting down), increases the losses