If all firms in a perfectly competitive industry are experiencing economic losses, then:
A)some firms will exit the industry, until economic profits are positive.
B)some firms will exit the industry, until accounting profits equal zero.
C)all existing firms will stay in the industry, hoping for better times.
D)some firms will exit the industry, until economic profits equal zero.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, firms cannot charge higher prices than their competitors, so they are price takers. If all firms are experiencing economic losses, it means that their costs (including opportunity costs) are higher than their revenue. In the long run, some firms will exit the industry, reducing the supply and increasing the market price, until economic profits are zero. Accounting profits may still be positive, but they do not consider opportunity costs, so economic profits are the relevant measure of profitability in this case. Therefore, option D is the best choice.

If All Firms in a Perfectly Competitive Industry Are Experiencing