Figure 6.3
-Figure 6.3 shows the cost structure of a firm in a perfectly competitive market. Assume the market price is $3 and the firm is currently producing 100 units. If the firm produces zero units in the short run, it will reduce its economic loss by

Question

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In a perfectly competitive market, if the firm produces zero units, its loss will be equal to its total fixed costs. When producing 100 units at a price of $3 each, the firm's total revenue is $300. If producing these units leads to a loss greater than $300, stopping production would reduce the loss by exactly the amount of revenue it is currently generating, which is $300. This is because, by not producing, the firm avoids variable costs, but still has to bear its fixed costs.

Figure 6.3 -Figure 6.3 Shows the Cost Structure of a Firm in Firm