If a firm in a perfectly competitive industry experiences persistent losses, what should it do in the long run?
A)Shut down temporarily and wait for market conditions to change.
B)Exit the industry.
C)Raise its price to cover average total cost.
D)Continue to operate if it can raise the demand for its product through advertising and quality improvements.

Question

Quizplus · Accepted Answer

In the long run, a firm in a perfectly competitive industry that experiences persistent losses should exit the industry. This is because in a perfectly competitive market, firms cannot set their prices above the market price, and thus cannot cover their costs if they incur losses in the long run. If a firm continues to operate, it will continue to incur losses and eventually go bankrupt. Exiting the industry is the best choice in this scenario, as it allows the firm to avoid further losses and focus its resources on more profitable activities.

If a Firm in a Perfectly Competitive Industry Experiences Persistent