Question

Can a firm be in equilibrium even when it is incurring losses?

Answer 1

Yes, even when a firm is losing money, it can still be in equilibrium. Not all businesses experiencing financial losses cease operations. Because fixed expenses are incurred even in the absence of output, businesses continue to function as long as variable costs are met. A company will find its equilibrium in such a situation when losses are at their lowest. Naturally, it happens when MR = MC.

When a firm maximizes its profits (TR - TC is maximum, and TR > TC) or minimizes its losses (TC − TR is minimal, and TC > TR), it is said to be in equilibrium.