If firms are experiencing economic losses in the short run, firms will leave the industry and industry output will _______ and economic losses will _______ in the long run.

Question

Quizplus · Accepted Answer

If firms are experiencing economic losses, it means that their total revenue is less than their total costs. In the short run, some firms may continue to produce despite the losses, but in the long run, they will leave the industry, leading to a decrease in industry output. This decrease in supply will eventually lead to an increase in price, which will help the remaining firms cover their costs and earn normal profits. As a result, economic losses will eventually disappear in the long run.

If Firms Are Experiencing Economic Losses in the Short Run