Questions: 7. In a perfectly competitive market, when would a firm leave a market in the long run? (a) When price is less than average total cost. (b) When price is above average total cost. (c) When price is less than average variable cost. (d) When price is less than marginal cost. (e) When marginal cost is less than average variable cost. 8. In a perfectly competitive market, when would a firm shut down in the short run? (a) When price is less than average total cost. (b) When price is above average total cost. (c) When price is less than average variable cost. (d) When price is less than marginal cost. (e) When marginal cost is less than average variable cost.

7. In a perfectly competitive market, when would a firm leave a market in the long run?
(a) When price is less than average total cost.
(b) When price is above average total cost.
(c) When price is less than average variable cost.
(d) When price is less than marginal cost.
(e) When marginal cost is less than average variable cost.
8. In a perfectly competitive market, when would a firm shut down in the short run?
(a) When price is less than average total cost.
(b) When price is above average total cost.
(c) When price is less than average variable cost.
(d) When price is less than marginal cost.
(e) When marginal cost is less than average variable cost.

Transcript text: 7. In a perfectly competitive market, when would a firm leave a market in the long run? (a) When price is less than average total cost. (b) When price is above average total cost. (c) When price is less than average variable cost. (d) When price is less than marginal cost. (e) When marginal cost is less than average variable cost. 8. In a perfectly competitive market, when would a firm shut down in the short run? (a) When price is less than average total cost. (b) When price is above average total cost. (c) When price is less than average variable cost. (d) When price is less than marginal cost. (e) When marginal cost is less than average variable cost.

Solution

Answer

The answer is (a) When price is less than average total cost.

Explanation

Option 1: When price is less than average total cost.

In the long run, a firm will leave the market if it cannot cover its average total costs. This is because, in the long run, all costs are variable, and if the firm is unable to cover these costs, it will not be sustainable to continue operating in the market.

Option 2: When price is above average total cost.

If the price is above average total cost, the firm is making a profit and has no reason to leave the market.

Option 3: When price is less than average variable cost.

This condition is more relevant to the short run. In the short run, if the price falls below the average variable cost, the firm would shut down temporarily.

Option 4: When price is less than marginal cost.

This condition does not directly determine long-run market exit. It is more related to the firm's production decisions in the short run.

Option 5: When marginal cost is less than average variable cost.

This condition is not typically used to determine long-run market exit. It is more relevant to short-run production decisions.

Answer

The answer is (c) When price is less than average variable cost.

Explanation

Option 1: When price is less than average total cost.

In the short run, a firm may continue to operate even if the price is less than average total cost, as long as it can cover its average variable costs.

Option 2: When price is above average total cost.

If the price is above average total cost, the firm is making a profit and will not shut down.

Option 3: When price is less than average variable cost.

In the short run, if the price falls below the average variable cost, the firm cannot cover its variable costs and will shut down to minimize losses.

Option 4: When price is less than marginal cost.

This condition does not directly determine short-run shutdown. It is more related to the firm's production decisions.

Option 5: When marginal cost is less than average variable cost.

This condition is not typically used to determine short-run shutdown. It is more relevant to production decisions.

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