Rafa runs a profit maximizing firm. It turns out that for Rafa his fixed costs are $1,000 and his avoidable fixed costs are $600. In his current short run situation when he has successfully set his marginal revenue equal to his marginal cost where marginal costs are rising, he is disappointed to discover that his economics profits are negative. In fact at this production level his profits are $- 500.
Required:
1. Which one of the following statements is TRUE?
A) Rafa's accounting profits must also be negative in the short run.
B) Rafa should shut down in the short run.
C) Rafa should continue to produce at a loss in the short run.
D) If Rafa is a monopolist, he should continue to operate in the short run, otherwise he should shut down.

Rafa should continue to produce in the short run because he stands a chance of making profit in the long run. His avoidable fixed costs are $600 and his Economic profits are -$500. In the long run, all costs are variable which means that he should be able to avoid the $600 fixed costs. When he does this, he will then be making an Economic profit of $100 because the $600 in Avoidable fixed cost will be just that, avoided and when that is offset against the -$500, he will get a $100 profit.