In the long run, if a perfectly competitive firm is incurring an economic loss, the firm
A) is earning greater than normal profit but not an economic profit.
B) will minimize opportunity costs by staying in business.
C) will have some long-run fixed costs.
D) will leave the industry.
E) will produce as long as total revenue exceeds total fixed cost.

Question

Quizplus · Accepted Answer

In the long run, a perfectly competitive firm will not continue to incur economic losses. Since firms in a perfectly competitive market cannot control the price, they must accept the market price. If the market price falls below the average total cost, firms will experience losses. In such a scenario, firms will have an incentive to exit the market as there are no barriers to exit in a perfectly competitive market. Therefore, choice D is the correct answer.

In the Long Run, If a Perfectly Competitive Firm Is