A firm can incur a loss in short-run when Price is lower than the SAC curve but greater than AVC.
In Fig.
E2 = Equilibrium point
P2 = Equilibrium price
Q2 = Equilibrium output
Total revenue (TR) = □ OP2E2Q2
Total cost (TC) = □ OABQ2
Loss = □ ABE2P2
Thus, whenever AVC < P < SAC, the firm incurs losses. Now the strategy of the firm is to minimise its loss. If the firm closes down, its loss is equal to the total fixed cost □ABCD in given fig.
