If a purely competitive firm shuts down in the short run,
A)its loss will be zero.
B)it will realize a loss equal to its total variable costs.
C)it will realize a loss equal to its total fixed costs.
D)it will realize a loss equal to its explicit costs.

Question

Quizplus · Accepted Answer

In the short run, if a purely competitive firm shuts down, it will still incur its total fixed costs (such as rent, insurance, and salaries) because these costs must be paid regardless of the level of production. However, it can avoid variable costs (like materials and labor directly associated with production) by not producing any output. Therefore, the loss it realizes is equal to its total fixed costs.

If a Purely Competitive Firm Shuts Down in the Short