Which of the following best describes what happens in the long run when a firm anticipates that the price of their good will always be less than average total cost (ATC)?

Choose 1 answer:
(A) The firm will enter the industry
(B) The firm will shut down.
(C) The firm will exit the industry.
(D) The firm will produce as long as price is less than average variable cost.
(E) The firm will produce as long as price is greater than average

Question

Which of the following best describes what happens in the long run when a firm anticipates that the price of their good will always be less than average total cost (ATC)?

Choose 1 answer:
(A) The firm will enter the industry
(B) The firm will shut down.
(C) The firm will exit the industry.
(D) The firm will produce as long as price is less than average variable cost.
(E) The firm will produce as long as price is greater than average

Accepted Answer

∻Solution∻ ‖ a ⋮ Long Run Decision: In the long run, if a firm anticipates that the price of their good will always be less than the average total cost (ATC), it means the firm will not be able to cover its total costs, including both fixed and variable costs. ‖ ‖ b ⋮ Exiting the Industry: When a firm cannot cover its total costs in the long run, it will exit the industry to avoid continuous losses. ‖ ∻Answer∻ ⚹ (C) The firm will exit the industry. ⚹ ∻Key Concept∻ ⚹ Long Run Exit Decision ⚹ ∻Explanation∻ ⚹ In the long run, firms will exit the industry if they anticipate that the price of their good will always be less than the average total cost (ATC), as they cannot sustain operations without covering all costs. ⚹◊What impact does anticipating that the price of their good will always be less than average total cost (ATC) have on a firm's long-run decision making in terms of industry entry or exit⍭ Generate me a similar question◊

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