Since P2 is well below the ATC curve at output level Q2, firms in this industry are incurring losses. The gray shaded area on the graph illustrates the amount of this loss at current prices.
Since firms in this industry are suffering losses, this industry has become a worse than typical investment. This means
that firms (some firms remember) will exit the industry. It makes
no sense that all firms would exit. Otherwise, entire industries
would disappear whenever there is a slight recession. Firms with
more optimistic owners will remain.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved