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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.
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.
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