There are 1,000 identical firms in a price-taker industry. In the short run, the total revenues of each firm are less than total costs. What will happen in the long run?
A) Nothing, because each firm is already maximizing its profits.
B) Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business (cover its variable costs).
C) Additional firms will enter the market, but the price will remain the same because the existing firms will not allow it to decrease.
D) Firms will exit the market, and the product price will rise.

Question

Quizplus · Accepted Answer

In the long run, firms that are not covering their total costs will exit the market, leading to a decrease in supply and an increase in the product price until the remaining firms can cover their costs and earn normal profits.

There Are 1,000 Identical Firms in a Price-Taker Industry