A competitive firm faces fixed costs even if it produces zero output. If it starts producing and selling some output, which of the following would happen?
A)The firm's total costs would increase, and its losses may become larger.
B)The firm would earn revenues and will therefore earn positive profits.
C)The firm's total costs would decrease, allowing it to possibly earn profits.
D)The firm would earn revenues that are greater than its costs.

Question

Quizplus · Accepted Answer

When a firm starts producing, its total costs increase because it incurs variable costs in addition to its fixed costs. This could potentially increase its losses if the revenues generated from selling the output do not cover the total costs.

A Competitive Firm Faces Fixed Costs Even If It Produces