Figure 10-8

In the long run, the perfectly competitive firm in Figure 10-8 will leave the industry if the price falls below

Question

Figure 10-8 ​

In the long run, the perfectly competitive firm in Figure 10-8 will leave the industry if the price falls below

Quizplus · Accepted Answer

In a perfectly competitive market, firms will continue to operate in the short run as long as the market price is greater than or equal to the minimum average variable cost (AVC) of production. In this case, the AVC curve intersects the marginal cost (MC) curve at a price of $9. Thus, if the price falls below $9, the firm will not be able to cover its variable costs and will shut down in the short run. In the long run, firms will exit the market if they are unable to cover their total average cost (ATC) of production. In this case, the ATC curve intersects the demand curve at a price of $5. Thus, if the price falls below $5 in the long run, the firm will exit the market. Therefore, the correct answer is B.

Figure 10-8 ​ In the Long Run, the Perfectly Competitive Firm in Figure

Figure 10-8 In the Long Run, the Perfectly Competitive Firm in Figure