Should a firm keep producing when prices drop?
In short: This video explains the critical rules firms use to decide whether to continue operations or exit an industry entirely, depending on their time horizon.
The decision to produce in the short run is determined by the relationship between price and average variable cost. Conversely, long-term industry exit choices are determined by how price compares to average total cost.
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Sources
- Summary by Intellect · source: Shutting down or exiting industry based on price | APⓇ Microeconomics | Khan Academy
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