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In a competitive market the current price is $5. The typical firm in the market has ATC = $5.50 and AVC =$5.15. A. In the short run firms will shut down, and in the long run firms will leave the market. B. In the short run firms will continue to operate, but in the long run firms will leave the market. C. New firms will likely enter this market to capture any remaining economic profits. D. The firm will earn zero profits in both the short run and long run.

Respuesta :

Answer: Option (A) is correct.

Explanation:

Correct option: In the short run firms will shut down, and in the long run firms will leave the market.

In the current market scenario, current price is $5, average total cost is $5.50 and average variable cost is $5.15. We know that the average total cost is the sum of average fixed cost and average variable cost. In this situation, both average total cost and average variable cost is greater than the current price.

So, it is better for the firm to shut down its operations in the short run as it will incurred the losses and also leave the market in the long run.

Based on the given costs and prices, in the short run firms will shut down, and in the long run firms will leave the market.

When should firm shut down and exit a firm?

The short run is a period when at least one or more factors of production are fixed. In the short run, if the average variable cost is greater than the price, the firm should cease production.

The long run is when all the factors of production are variable. In the long run, if the if the average total cost is greater than the price, the firm should exit the market.

To learn more about cost, please check: https://brainly.com/question/26502221

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