If a competitive firm is losing money then it should:

Question

Quizplus · Accepted Answer

A competitive firm should shut down if its losses are greater than total fixed costs because in the short run, it cannot recover its losses and continuing to operate will only result in more losses. Shutting down will minimize its losses to just the fixed costs. Options A and C are not always the best choices because shutting down should be based on the comparison between losses and fixed costs, not a fixed rule. Option D may not be possible if the firm is operating in a competitive market where raising prices could lead to a loss in market share.

If a Competitive Firm Is Losing Money Then It Should