Suppose a product suddenly loses popularity and the firms producing the product begin to realize large losses.As firms exit the market,the equilibrium price in the market will
A) increase and make it more attractive for the remaining firms stay in business.
B) decrease and make it more attractive for the remaining firms stay in business.
C) decrease further and push more firms out of business.
D) decrease further while making the remaining firms realize profits again.

Question

Quizplus · Accepted Answer

When firms exit the market due to large losses, the supply of the product decreases. With less supply, the equilibrium price increases, making it more attractive for the remaining firms to stay in business as they can potentially sell their products at higher prices.

Suppose a Product Suddenly Loses Popularity and the Firms Producing