A firm should exit the industry if which of the following conditions apply? A) TR TC B) P

Question

A firm should exit the industry if which of the following conditions apply?
A) TR > TC
B) P < AC
C) Lifetime expected profit is positive.
D) Prices are low now but expected to rise.

Quizplus · Accepted Answer

If the price (P) is less than the average total cost (AC), it means that the firm is incurring losses. Therefore, it should exit the industry to avoid further losses. The other options do not necessarily indicate that a firm should exit the industry. For example, if total revenue (TR) is greater than total cost (TC), it means that the firm is making profits, but it may still want to exit the industry if it expects that profits will decline in the future. Similarly, a positive lifetime expected profit does not imply that the firm should stay in the industry if the current situation is unfavorable. Likewise, even if prices are low currently but are expected to rise in the future, it may not be a good enough reason to exit the industry. Therefore, option B is the best choice as an indication to exit the industry.

A Firm Should Exit the Industry If Which of the Following