If a purely competitive increasing-cost industry is realizing economic losses, we can expect industry supply to
A)decrease, output to fall, price to rise, and profits to rise.
B)decrease, output to fall, price to fall, and profits to rise.
C)increase, output to rise, price to fall, and profits to rise.
D)decrease, output to rise, price to rise, and profits to rise.

Question

Quizplus · Accepted Answer

In a purely competitive increasing-cost industry facing economic losses, firms will exit the industry. This reduces the industry's supply, leading to a decrease in output. With less supply, the price will increase, which can lead to an improvement in profits for the remaining firms.

If a Purely Competitive Increasing-Cost Industry Is Realizing Economic Losses