Answer to Question #125698 in Microeconomics for Mike Bernard

Question

1. Under what conditions will monopolies and perfectly competitive firms make losses, even when they are producing the profit-maximizing output? Under what conditions will they both stay in business and continue to produce in the short run, even with making losses?

Answer 1

In cases when the average total cost is higher than the product price manufacturer will have losses and even may bankrupt in the long run. He can continue to work at a loss only knowing that after a certain time the market price of the goods will either increase or he will be able to reduce his costs (for example, by launching a new production line).