Strategic Decision for a Competitive Firm

A firm in a competitive market is producing at a quantity where the market price is $50. At this quantity, the firm's average total cost is $60, and its average variable cost is $45. Assuming these conditions are expected to persist, which of the following describes the firm's optimal strategy?

If a firm in a perfectly competitive market finds that the current market price is below its average total cost but above its average variable cost, its best immediate course of action is to exit the market.

A perfectly competitive market is initially in long-run equilibrium. A permanent decrease in market demand then occurs, causing firms to incur economic losses. Arrange the following events in the logical sequence that describes the market's adjustment to a new long-run equilibrium.

Short-Run Operation vs. Long-Run Exit

Market Adjustment Through Firm Exit

A firm in a competitive market is evaluating its long-term viability based on persistent short-run conditions. Match each condition with the most likely long-run outcome for the firm.

A firm will choose to exit an industry in the long run if the market price is persistently below its ________, because it would not be covering the full opportunity cost of its resources.

Consider a typical firm operating in a perfectly competitive market. The current market price for the product is below the firm's minimum average total cost but above its minimum average variable cost. Assuming this situation is representative of many firms in the market and is expected to persist, what is the most likely adjustment that will occur in the market in the long run?

Evaluating a Farmer's Long-Term Strategy