Is the following statement True, False or Uncertain? Explain your answer. "In the long run, firms will exit the market if price falls below the firm's average total cost

Question

Business

Tyler Price

18 June, 12:02

Is the following statement True, False or Uncertain? Explain your answer. "In the long run, firms will exit the market if price falls below the firm's average total cost

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Answers (2)

Know the Answer?

Jade Ellison · Answer 1

I think no, if he decided to leave, he will lose his share in market. And this not easy to to in short run

Raegan Franklin · Answer 2

True

Explanation:

The purpose of any business is to make profit, which is from the difference between revenues (price of product multiplied number of product sold) with the cost of goods sold (average total cost multiplied number of product sold).

In short, the profit = (price - average total cost) x number of product sold.

Normally the price must be above / higher than cost, so that the firm can have profit. Sometime the price in the market go down, so the firm have have to adjust down its price also to maintain customer's purchases.

Once its price is down, but the firm's average total cost is still same as previous, the firm can not have profit as previously. The firm may bear this situation as long as its capital capacity allowed, but will not be too long.