The largest loss a profit-maximizing perfectly competitive firm can incur in the short run equals its
A) average variable cost multiplied by output.
B) total fixed cost.
C) marginal cost multiplied by the number of units produced.
D) average total cost multiplied by the number of units produced.
E) total variable cost.

Question

Quizplus · Accepted Answer

The largest loss a profit-maximizing perfectly competitive firm can incur in the short run equals its total fixed cost. This is because, in the short run, a firm will continue to operate as long as it can cover its variable costs, even if it cannot cover its total costs. The firm's losses are thus capped at the total fixed costs, since any revenue generated goes first towards covering variable costs.

The Largest Loss a Profit-Maximizing Perfectly Competitive Firm Can Incur