Asked by Chelsey Wheatley on May 16, 2024
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Suppose that a competitive firm finds that in its short-run equilibrium situation, its marginal cost is higher than its average total cost. If things are not expected to change and there are constant returns to scale, then the firm will exit the industry in the long run.
Average Total Cost
The per-unit cost of production, obtained by dividing total costs by the total quantity of goods or services produced.
Marginal Cost
The expenditure for assembling another unit of a product or service.
Short-Run Equilibrium
A state in which market supply and demand balance each other, and as a result, prices become stable for a short period.
- Understand the traits and ramifications of long-run equilibrium in competitive settings, with a focus on the function of normal profits.
- Discern the movement of prolonged supply curves in reaction to industry cost fluctuations and market entry or departure conditions.
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Learning Objectives
- Understand the traits and ramifications of long-run equilibrium in competitive settings, with a focus on the function of normal profits.
- Discern the movement of prolonged supply curves in reaction to industry cost fluctuations and market entry or departure conditions.
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