When the conditions in a competitive price-taker market are such that the firms are consistently unable to cover their production costs,
A) the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits.
B) all firms will go out of business since consumers will not pay prices that enable firms to cover their production costs.
C) some firms will exit from the industry, and market price will rise until the remaining firms can earn the normal rate of return.
D) resource prices will increase, competition will decline, and eventually the firms in the industry will earn monopoly profit.

Question

Quizplus · Accepted Answer

In a competitive market, if firms cannot cover costs, some will exit, reducing supply and causing prices to rise until remaining firms can earn a normal profit.

When the Conditions in a Competitive Price-Taker Market Are Such