In the long run, if price is less than average cost
A)there is an incentive for firms to exit the market.
B)there is profit incentive for firms to enter the market.
C)the market must be in long-run equilibrium.
D)there is no incentive for the number of firms in the market to change.

Question

Quizplus · Accepted Answer

If price is less than average cost, firms will be making losses. In the long run, this will lead to firms exiting the market, as they cannot sustain these losses indefinitely. Therefore, there is an incentive for firms to exit the market when price is less than average cost.

In the Long Run, If Price Is Less Than Average