In which of the following cases would entry and exit cease? A)P short-run ATC. B)P = long-run ATC. C)P long-run ATC. D)P

Question

In which of the following cases would entry and exit cease?
A)P > short-run ATC.
B)P = long-run ATC.
C)P > long-run ATC.
D)P < long-run ATC.

Quizplus · Accepted Answer

When price is equal to long-run average total cost (LRATC), firms earn only a normal profit and have no incentive to enter or exit the market. This is because LRATC includes all costs, including opportunity costs, so firms are earning a return that is just sufficient to keep them in the market. Any higher price could attract new firms, but any lower price would cause existing firms to exit. Therefore, at P=LRAC, entry and exit would cease.

In Which of the Following Cases Would Entry and Exit