When the firms in a perfectly competitive market are incurring economic losses,some of the firms will exit the market,causing the supply curve to shift left and market price to rise until losses incurred by the remaining firms are eliminated.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms are price takers and cannot control the market price. If firms are incurring economic losses, some of them will exit the market, causing a leftward shift in the supply curve. As a result, the market price will increase until the remaining firms' losses are eliminated and they break even. This process will continue until a long-run equilibrium is reached, where firms earn normal profits. Therefore, the statement is true.

When the Firms in a Perfectly Competitive Market Are Incurring