Illustrate about perfectly competitive market firm, Macroeconomics

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Why might a perfectly competitive market firm be willing to run at a loss in the short run?

The assumptions of a PCM firm should be outlined in order to end that the PCM firm is a price-taker - and cannot affect the market, either in terms of output or price. Using the unit cost picture, it should be made clear that ATC = AR is the breakeven level of output, and that the firm will incur losses if the price is below ATC. Though, as long as the firm is covering some of the fixed costs, it might be willing to stay in the market for the SR - as losses will be higher if it leaves the market as all set costs will remain.

 


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