The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7

-Under perfect competition, existing firms leave the market in the long run if the price falls below total fixed cost.

Question

The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7
 
-Under perfect competition, existing firms leave the market in the long run if the price falls below total fixed cost.

Quizplus · Accepted Answer

Under perfect competition, existing firms may temporarily operate at a loss in the short run if the price falls below total cost (including both fixed and variable costs), but they will not leave the market in the long run as long as the price covers average total cost. In the long run, firms may enter or exit the market depending on profitability, but they will not automatically leave if the price falls below total fixed cost.

The Figure Given Below Shows the Aggregate Demand and Supply