A firm has been operating in the market for a long time. Its profits have been falling considerably. The producer is not able to decide whether to continue with the operation or exit the industry. As a student of economics, suggest him the way.

A firm has been operating in the market for a long time. Its profits h

1.	A firm has been operating in the market for a long time. Its profits have been falling considerably. The producer is not able to decide whether to continue with the operation or exit the industry. As a student of economics, suggest him the way.
Answer» Solution :It is clear from the question that the price charged by the FIRM is LESS than the average cost incurred by it. The firm hasto ENSURE the following and accordingly the decision to leave or STAY in the operation can be taken (i) If the firm is able to recover average variable cost FULLY and average fixed cost partially, then it may stay in the business and review its plans and policiesto reduce the losses. (ii) If average variable cost is recovered and average fixed cost is not at all recovered, the firm should close down its operation. It is a shut down point for the firm.