Even if a perfectly competitive firm produces at a loss in the short run,continued production is preferable to shutting down as long as

Question

Quizplus · Accepted Answer

In the short run, a perfectly competitive firm should continue production even if it incurs losses as long as the total revenue covers the variable cost. However, if the price falls below the average variable cost, the firm will incur losses on both fixed and variable costs. In such a scenario, the firm should compare the total loss incurred with the total fixed cost. It should continue production only if total losses are less than total fixed cost. Otherwise, it is better to shut down, as continuing production will increase the total loss. Therefore, option B is the correct answer.

Even If a Perfectly Competitive Firm Produces at a Loss