In the long run

Question

In the long run

Quizplus · Accepted Answer

In the long run, a firm will shut down if its revenue is less than its avoidable costs, which includes both variable and fixed costs. This is because in the long run, all costs are avoidable, and the firm cannot sustain losses forever, as it can in the short run where fixed costs are sunk. Therefore, option A is the correct choice. Option B is not sufficient because marginal profit can be positive but still lower than the average cost, leading to losses in the long run. Option C is incorrect because economic profit can be zero, and the firm can still cover its accounting and opportunity costs, thereby continuing to operate in the long run. Option D is not true because supply curves are flatter in the long run, reflecting the possibility of firms entering or exiting the industry based on profit opportunities.

In the Long Run