The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7

-Some competitive firms are willing to operate at a loss in the short run because their revenues are at least able to cover their variable costs.

Question

The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7
 
-Some competitive firms are willing to operate at a loss in the short run because their revenues are at least able to cover their variable costs.

Quizplus · Accepted Answer

This statement is true. In the short run, firms may continue to operate even if they are not making a profit, as long as their revenues cover their variable costs. This is because shutting down completely in the short run would result in even larger losses due to fixed costs. However, in the long run, firms that are consistently operating at a loss will eventually exit the market.

The Figure Given Below Shows the Aggregate Demand and Supply