When price is less than the firms' minimum average total cost in a perfectly competitive market in the long run,________.

Question

Quizplus · Accepted Answer

When the price is below the minimum average total cost, firms will be making losses. In the long run, this will cause firms to leave the market as they cannot sustain losses indefinitely. As a result, the industry supply will decrease, causing the price to increase until it is equal to the minimum average total cost. Therefore, existing firms will leave the market.

When Price Is Less Than the Firms' Minimum Average Total