In perfectly competitive market, when the price is less than AVC in the short run, then the profit/loss of the firm will be ____________.
Answer & explanation
Correct answer: option 4
The correct answer is Option 4: Loss = Total Fixed Cost plus some portion of Total Variable Cost
When price is less than AVC, this means TR < TVC. This means firm is unable to fully cover its TVC. It is able to cover its TVC only partially with its TR. So the loss will be TFC + some portion of TVC.