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Question: A firm is experiencing a loss of $5,000 per year. The firm has fixed costs of $8,000 per year.

a. Should the firm operate in the short run or shut down?

b. If the situation persists into the long run, should the firm stay in the industry or go out of business?

c. Now suppose that the firm's fixed costs are $2,000. How would this change its short-run and long-run decisions?

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