Answer to Question #275620 in Economics of Enterprise for Roxy

Question #275620

Explain what causes a perfectly competitive firm to suffer losses.

1
Expert's answer
2021-12-06T16:17:50-0500

TR=0PEQTR=0P^*EQ^*

TC=0ABQTC=0ABQ^*

Profit(Loss)=PABE=P^*ABE

=0PEQ0ABQ=0P^*EQ^*-0ABQ^*

A perfectly competitive firm incurs a loss or subnormal profit in the short run because the average cost of producing this output is more than the ruling market price hence TR<TC.TR<TC.


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