FIGURE 6 A PERFECTLY COMPETITIVE FIRM MINIMIZING LOSSES

Assume that the price of windsurfing sails falls to $170 a sail. Loss minimization requires an output at which MR = MC, in this case, at 65 units (point e). Average total cost is $178 (point c); therefore, loss per unit is equal to $8. Total loss is equal to $8 × 65 = $520. Notice that this is less than the fixed costs ($1,000) that would have to be paid even if the plant was closed.