If all firms in a perfectly competitive industry are experiencing economic losses,then firms will
A) enter the industry,seeking new opportunities.
B) exit the industry,stopping when accounting profits equal zero.
C) continue in the industry,hoping for better times.
D) exit the industry,stopping when economic profits equal zero.
E) exit the industry,stopping when economic profits are positive.

Question

Quizplus · Accepted Answer

In the short run, firms will continue producing as long as they are able to cover their variable costs. However, in the long run, firms will exit the industry if economic profits are negative. Economic profits are equal to total revenue minus both explicit and implicit costs, while accounting profits are only equal to total revenue minus explicit costs. Therefore, firms will exit the industry when economic profits equal zero, not accounting profits.

If All Firms in a Perfectly Competitive Industry Are Experiencing