Multiple choice

In the long run any firm will eventually leave the industry, if

  1. price does not at least cover the average total cost.

  2. Price does not equal marginal cost.

  3. economies of scale are being reaped.

  4. price is greater than long run average cost.

Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In the long run, firms can freely enter or exit an industry. If price is below average total cost, the firm cannot cover all its costs and will eventually exit. Economic profit requires P >= ATC. Options B, C, and D are incorrect because P=MC is profit-maximizing condition (not exit condition), economies of scale reduce costs (encouraging entry), and P > LRAC would attract entry not exit.

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