In a successful economy, no firm should go bankrupt. Bankruptcy is a signal of a market failure.

Question

Quizplus · Accepted Answer

Bankruptcy is a natural occurrence in any economy as firms can face financial difficulties due to various factors such as poor management decisions, market changes, and unexpected events. Bankruptcy can also serve as a market correction mechanism by allowing inefficient or poorly managed firms to exit the market and reallocating their resources to more productive ones. While bankruptcy can be indicative of market failures in certain cases, it is not a general rule that all bankruptcies signal market failures.

In a Successful Economy, No Firm Should Go Bankrupt