Question

If the present value of all future profit is​ positive, then A. the firm should shut down if it is earning a negative profit in the short run. B. the firm should remain​ operating, even if it earns negative profit in the short run. C. the firm should shut down if it cannot cover its fixed costs in the short run. D. None of the above.

Answer 1

B. the firm should remain​ operating, even if it earns negative profit in the short run.

Step-by-step explanation:

Once this part of the cycle is complete, it will start generating revenue at some point as the present value which, includes this negative result is positive.

Because the company's present value is positive currently, is facing a part of their project cycle at which the outflow are greater than inflow. This will change in the long-run and overcome the losses. It will generate enough gain to compensate the losses and end up generating a net gain.

The company should continue their operation.