In the short run,a competitive firm may choose to operate at a loss
A) to ensure that other firms make a loss as well.
B) only if those losses are economic losses.
C) to gain market power in the future.
D) only if those losses are accounting losses.
E) to recover a portion of its fixed costs.

Question

Quizplus · Accepted Answer

In the short run, a competitive firm may choose to operate at a loss to recover a portion of its fixed costs. Fixed costs are costs that a firm incurs regardless of its level of output. By continuing to produce and sell, the firm can cover a portion of its fixed costs and minimize its losses. Once the firm has covered its fixed costs, it may choose to exit the market or continue operating if it anticipates a return to profitability in the future.

In the Short Run,a Competitive Firm May Choose to Operate