Why would firm that incurs losses select to produce instead of shut down?
Losses take place when revenues do not cover total costs. Revenues could be greater than variable costs, but not total costs, in which case the firm is better off producing in the short run instead of shutting down, even though they are incurring a loss. The firm have to compare the level of loss along with no production to the level of loss with positive production, and pick the option which results in the smallest loss. In the short run, losses will be minimized so long as the firm covers its variable costs. In the long run, all costs are variable, and therefore, all costs must be covered if the firm is to remain in business.