A firm will continue to operate in the long run only if:
A)it earns a rate of return that is higher than the normal rate of return.
B)it earns a nonnegative economic profit.
C)it makes a positive accounting profit.
D)average cost exceeds price.
E)the average variable cost exceeds price.

Question

Quizplus · Accepted Answer

A firm will only continue to operate in the long run if it earns a nonnegative economic profit, which means that total revenue should be higher than total cost, including opportunity cost. If the firm earns zero economic profit, it can continue to cover its explicit costs in the short run, but it won't be able to cover its opportunity cost, and therefore won't continue to operate in the long run. If the firm earns negative economic profit, it won't be able to cover its explicit and implicit costs, and will eventually shut down. Thus, a firm must earn a nonnegative economic profit to continue to operate in the long run.

A Firm Will Continue to Operate in the Long Run