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A firm will shut down in the long-run if the a) price is above the minimum average total cost (ATC)
A firm will shut down in the long-run if the
a) price is above the minimum average total cost (ATC).
b) price is equal to the minimum average total cost (ATC).
c) price is anywhere above the minimum average variable cost (AVC).
d) price is anywhere below the minimum average total cost (ATC).
e) the firm is making zero economic profits.
Expert Solution
A firm will shut down in the long-run if the d) price is anywhere below the minimum average total cost (ATC).
In the long-run, the firm will not incur fixed costs. The fixed cost has already been recovered in the short-run. Here, the average total cost (ATC) consists of variable costs per unit. The profit of the firm will depend on the difference between the total revenue and the total variable costs.
Profit=Totalrevenue−TotalvariablecostProfit=Totalrevenue−Totalvariablecost
OR
Profit=Sellingprice−AveragetotalcostProfit=Sellingprice−Averagetotalcost
If the price is less than the minimum average total cost, the firm will incur losses. As a result, the firm will need to shut-down.
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