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JAMB Economics 1987 Question 13

Question 13

Market Structures

In the long run a firm will leave an industry if price

  1. A.does not cover at least Average Total Cost
  2. B.is not equal to Marginal Cost
  3. C.is higher than Average Variable Cost
  4. D.is not at least equal to the minimum of the Marginal Cost curve.
Show the answer and explanation

Answer: A (does not cover at least Average Total Cost)

Explanation

In the long run every cost is variable, so a firm that cannot cover its average total cost makes losses and leaves the industry.