Question

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if A. price is less than average total cost. B. average revenue is greater than average fixed cost. C. price is greater than average total cost. D. average revenue is greater than marginal cost.

Answer 1

Answer: A. Price is less than average total cost

Explanation:

Long rum refers to the period long enough for all factors of production to be variable, therefore this tells us that average variable costs are equal to average total costs because all factors of production are variable. A Profit Maximising firm needs to make normal profit at least in order to remain in the industry, meaning a Firms Price must at least be equal to the total average costs/ Average Variable Costs. When the Price is less than the total average costs the firm must shut down