Billy Bob's Fertilizer Engineers, a perfectly competitive firm, is incurring a loss, but the price is still above minimum average variable cost. Then in the short run this firm should , and in the long run, if there is no change in economic conditions, this firm should .

A) shut down; exit the industry
B) shut down; expand
C) produce where MR = MC; exit the industry
D) produce where MR = MC; expand

Question

Billy Bob's Fertilizer Engineers, a perfectly competitive firm, is incurring a loss, but the price is still above minimum average variable cost. Then in the short run this firm should ________, and in the long run, if there is no change in economic conditions, this firm should ________.

A) shut down; exit the industry
B) shut down; expand
C) produce where MR = MC; exit the industry
D) produce where MR = MC; expand

Michael Reinshuttle · Accepted Answer

Final Answer : C, Explanation :  In the short run, if the price is above the minimum average variable cost, the firm should continue producing where marginal revenue (MR) equals marginal cost (MC) to minimize losses. In the long run, if economic conditions do not change and the firm continues to incur losses, it should exit the industry to avoid further losses.

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