If a firm is currently equating MR and MC and product price = $24, AVC = $22, and ATC = $26, then in the long run this firm:
Question 11 options:
A) will continue to operate at a loss.
B) will earn a positive profit.
C) will go out of business.
D) should increase output.
The correct answer is A) will continue to operate at a loss.
If MR (marginal revenue) is equal to MC (marginal cost) in the short run, the firm is maximizing its profit or minimizing its loss. However, in the long run, the firm should consider its average total cost (ATC) to determine whether it can cover all its costs and earn a positive profit.
In this case, the price ($24) is lower than the average total cost ($26), indicating that the firm is not earning enough revenue to cover all its costs. Therefore, the firm will continue to operate at a loss in the long run.