Question

If a purely competitive firm shuts down in the short run: its loss will be zero. it will realize a loss equal to its total variable costs. it will realize a loss equal to its total fixed costs. it will realize a loss equal to its explicit costs.

Answer 1

Answer:

it will realize a loss equal to its total fixed costs.

Explanation:

A purely competitive firm will shut down in the short run when its variable costs are higher than the marginal revenue obtained from selling its products. As long as the marginal revenue exceeds variable costs, even if marginal revenue is below average total cost.

When the company halts production, its variable costs will cease, and only its fixed costs will remain. So its loss will equal its total fixed costs.

Answer 2

Answer:

If a purely competitive firm shuts down in the short run: it will realize a loss equal to its total variable costs.

Explanation:

Shutting down in the short run is a proactive action undertaken by competitive firm to to avoid losses.

Otherwise, if they continue production, they will accrue more losses from operating cost.

in the short run, the firm has is committed to pay spend on recurrent expenditure and even if the firm produces a quantity of zero, it would still make losses because it would still need to pay for its fixed costs such as rent and insurance,

Therefore, competitive firms shut down in the short run so that they can reduce variable costs to zero.