If a competitive firm cannot earn a profit at any level of output during a given shortminusrun period, then which of the following is FALSE?

A. It will shut down in the short run and wait until the price increases sufficiently.

B. It will exit the industry in the long run.

C. It will minimize its loss by decreasing output so that price exceeds marginal cost.

D. It will operate at a loss in the short run

Question

Iyana Quinn

Business

11 August, 17:01

If a competitive firm cannot earn a profit at any level of output during a given shortminusrun period, then which of the following is FALSE?

A. It will shut down in the short run and wait until the price increases sufficiently.

B. It will exit the industry in the long run.

C. It will minimize its loss by decreasing output so that price exceeds marginal cost.

D. It will operate at a loss in the short run

+5

Answers (1)

Know the Answer?

Max Morgan · Answer 1

Answer: Option (C) is correct.

Explanation:

In a competitive market conditions, there are large number of buyers and sellers. All the firms in this market condition are selling identical products or we can say that all the goods are perfect substitutes.

Suppose if the firms earning negative economic profit then they continue to operate until the price of their goods is greater than the average variable cost and they shut down their production if the price of their goods is lower than the average variable cost.

A firm can experience normal profit, loss or supernormal in the short run.

But competitive firms cannot decreases their output to minimizes their losses.