If a firm is experiencing an economic loss in the long run,then
A)it must be experiencing an accounting loss
B)it should stay in business if it can cover its fixed costs
C)the market must be too large
D)it should exit from the industry
E)price exceeds marginal cost

Question

Quizplus · Accepted Answer

If a firm is experiencing an economic loss in the long run, it means that its total revenue is less than its total cost which includes both variable and fixed costs. If the firm cannot cover its total cost, it should exit the industry as it cannot sustain losses indefinitely. Therefore, option D is the best choice. Option A is incorrect as an accounting loss is based on explicit costs, whereas an economic loss takes into account both explicit and implicit costs. Option B is incorrect since covering fixed costs alone does not mean that the firm is profitable or even breaking even. Option C is irrelevant as the size of the market does not necessarily determine if a firm is profitable or not. Option E is also incorrect since the fact that price exceeds marginal cost does not guarantee that the firm is profitable.

If a Firm Is Experiencing an Economic Loss in the Long