If a Purely Competitive Firm Is Currently Facing a Situation

question 29

Multiple Choice

If a purely competitive firm is currently facing a situation where the price of its product is lower than the average variable cost, but it believes that the market demand for its product will increase soon, then

• A) the firm will produce a low level of output in the short run and leave the industry in the long run.
• B) the firm will shut down in the short run and leave the industry in the long run.
• C) the firm will produce a low level of output in the short run but expand its plant in the long run as demand increases.
• D) the firm will shut down in the short run, but stay in the industry in the long run if it expects the product price to rise high enough soon.

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