Economic losses

Definition

Economic losses occur when a firm's total costs exceed its total revenue, resulting in a negative profit. In other words, the business is not generating enough income to cover all of its expenses.

Related terms

Fixed Costs: Fixed costs are expenses that do not change regardless of the level of production or sales. For example, rent for a store or equipment lease payments.

Variable Costs: Variable costs are expenses that change based on the level of production or sales. Examples include raw materials or wages for workers.

Shutdown Point: The shutdown point is the minimum price at which a firm will continue to produce in the short run despite experiencing economic losses. If prices fall below this point, it becomes more profitable for the firm to stop production altogether.