If firms in a perfectly competitive industry are experiencing losses in the short run,we would expect firms to exit this industry and cause the market supply curve to ________.
A) shift left until Price = Minimum average total cost
B) shift left until Price = Minimum average variable cost
C) shift right until Price = Minimum average total cost
D) shift right until Price = Minimum average variable cost

Question

Quizplus · Accepted Answer

When firms exit an industry, the supply decreases, leading to a leftward shift in the market supply curve. This process continues until the remaining firms can sell their product at a price equal to the minimum average total cost, at which point they can cover all their costs and earn normal profit, eliminating the incentive for further exits.

If Firms in a Perfectly Competitive Industry Are Experiencing Losses