When we see a firm make a long-run decision to exit the industry, it is likely that
A) profits are positive but unattractive to the owner
B) market prices only covered average total, but not average variable costs
C) all loans have been paid back early
D) market prices will stay below marginal costs at all levels of production where average total costs are falling
E) the cost of fixed factors of production have increased dramatically

Question

Quizplus · Accepted Answer

In the long run, a firm will exit the industry if it cannot cover its costs, meaning market prices are below marginal costs at all production levels where average total costs are falling.

When We See a Firm Make a Long-Run Decision to Exit