In the short run, a purely competitive firm will be willing to produce at a loss provided that there are no fixed costs.
Fixed costs must be paid regardless of the level of production.
These include rent, interest payments on loans, and depreciation for assets like machinery and equipment.
If a firm’s fixed costs are $500 per day, then it is not profitable for them to produce anything in the short run if they sell each unit of output at less than $500.
However, if the firm sells each unit of output at $750 or more, then it is profitable to produce.
In economics terminology, what are short-run equilibrium prices and quantities?
A purely competitive firm will be willing to produce at a loss in the short run provided that there are no fixed costs (these include rent, interest payments on loans, and depreciation for assets like machinery and equipment).
If a firm’s fixed costs are $500 per day, then it is not profitable for them to produce anything in the short run if they sell each unit of output at less than $500.
However, if the firm sells each unit of output at $750.
