A purely competitive firm will be willing to produce even at a loss in the short run, as long as
A)the loss is smaller than its total variable costs.
B)the loss is smaller than its marginal costs.
C)the loss is smaller than its total fixed costs.
D)price exceeds marginal costs.

Question

Quizplus · Accepted Answer

A purely competitive firm may continue to produce in the short run even at a loss, as long as the revenue it earns covers its variable costs, with the loss being smaller than its total fixed costs. This is because, in the short run, fixed costs are sunk costs and cannot be recovered by shutting down production. Continuing to produce allows the firm to cover some portion of its fixed costs.

A Purely Competitive Firm Will Be Willing to Produce Even