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    • Question

      The "Cessation of Production" or the Long-run Exit

      Condition for a firm occurs when:
      A Price < Average Variable Cost Correct Answer Incorrect Answer
      B Price < Average Total Cost Correct Answer Incorrect Answer
      C Marginal Revenue < Marginal Cost Correct Answer Incorrect Answer
      D Total Fixed Cost becomes zero Correct Answer Incorrect Answer

      Solution

      In the short run, a firm might stay open if it covers its variable costs (P > AVC). However, in the long run, all costs are variable. If the price cannot cover the Average Total Cost (ATC), the firm cannot sustain its operations and will exit the industry.

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