1 answer

Should a firm making a loss in the short-run always leave the market? Why or why...

Question:

Should a firm making a loss in the short-run always leave the market? Why or why not? What about in the long-run?


Answers

Firm will not leave the industry in short run if it is covering all its variable cost. If it is not able to earn even its variable cost than firm should leave the industry. In this if price is higher than Average variable cost than firm will not leave in short run but if price is less than AVC than firm should shut down.

In long run firm will leave the industry if it is not covering all its cost or price is less than average total cost.

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