Suppose one firm in a perfectly competitive industry experiences an increase in its costs of production. Which of the following best describes the most likely long run adjustment to this situation?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers and cannot pass on increased costs to consumers through higher prices. If one firm experiences an increase in its costs of production, it may become less competitive, suffer losses, and potentially exit the industry if it cannot find a way to reduce costs or increase efficiency. Other firms in the industry, not facing the same cost increase, would not be directly affected in the same way.

Suppose One Firm in a Perfectly Competitive Industry Experiences an Increase