If a perfectly competitive firm operates in the short run but exits the industry in the long run, then the firm's short run condition is A) TR TC. B) TR TVC and TR

Question

If a perfectly competitive firm operates in the short run but exits the industry in the long run, then the firm's short run condition is A) TR > TC. B) TR > TVC and TR < TC. C) TR < TVC. D) TR < TFC.

Quizplus · Accepted Answer

In the short run, a firm will continue to operate as long as it can cover its total variable costs (TVC) even if it's not covering its total costs (TC), which includes both fixed and variable costs. This is because, in the short run, fixed costs (TFC) are sunk and cannot be recovered. However, if the firm's total revenue (TR) is less than its total costs, it will exit the industry in the long run when it can adjust its fixed costs.

If a Perfectly Competitive Firm Operates in the Short Run