AP Microeconomics Flashcards: Firms' Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 10 cards to help you master important concepts.
If many new firms begin entering a specific market, what can you infer about that market in the long run?
You can infer that the market has profit-making opportunities and an absence of significant barriers to entry.
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If many new firms begin entering a specific market, what can you infer about that market in the long run?
You can infer that the market has profit-making opportunities and an absence of significant barriers to entry.
What is the primary difference between a firm's short-run and long-run decisions?
The short-run decision is whether to produce or shut down, while the long-run decision is whether to enter or exit a market entirely.
If a firm's market price is below its average variable cost (P < AVC), what should it do in the short run?
The firm should shut down and produce zero output in the short run to minimize its losses.
A firm's total revenue covers its total variable costs but not its total costs. What is the firm's short-run decision?
The firm should continue to operate in the short run because it is covering its variable costs and can use the remaining revenue to pay down some of its fixed costs.
What condition allows firms to freely enter or exit a market in the long run?
Firms can freely enter or exit a market in the long run due to the absence of barriers to entry or exit.
What is the key comparison a firm makes for its short-run decision to operate or shut down?
In the short run, a firm compares its total revenue to its total variable cost, or alternatively, the market price to its average variable cost (AVC).
What is the long-run entry decision for a firm?
In the absence of barriers, firms will enter a market in the long run when there are profit-making opportunities.
Define the 'shut down' decision for a firm.
Shutting down is a firm's short-run decision to produce zero output, which occurs if price is less than average variable cost.
What is the long-run exit decision for a firm?
In the long run, firms will exit a market when they anticipate economic losses.
What distinguishes the long run from the short run regarding factors of production?
In the long run, factors that are fixed in the short run (like capital or plant size) become variable, allowing a firm to adjust all inputs.