Hank operates a perfectly competitive firm in the long run.For several periods,the market price has been $20,and his break-even price is $22.Given the chance to change his fixed costs,Hank should:

A) stay in the industry since he can cover his fixed costs.
B) seriously consider exiting the industry since he is consistently making economic losses.
C) stay in the industry since he is a perfect competitor and must take the price as given.
D) wait for the short-run period.

Question

Leslie Janho · Accepted Answer

Final Answer : B, Explanation :  If the market price is consistently below Hank's break-even price, he is making losses in the long run. Therefore, he should seriously consider exiting the industry to avoid further losses. Being a perfectly competitive firm, Hank cannot influence the market price, and changing his fixed costs will not make a significant impact on his profitability. Waiting for the short-run period may not change the market conditions that are causing his losses.

Definitions

Learning Objectives

Learning Objectives

Related questions