If Dorothy's Doughnuts is a perfectly competitive firm and is currently incurring economic losses of $500,
A) firms will enter the market.
B) firms will exit the market.
C) individuals will demand more doughnuts.
D) individuals will demand fewer doughnuts.
E) the market supply curve will shift to the right.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, if a firm is incurring economic losses, it indicates that the market price is below the average total cost for some firms. This situation typically leads to firms exiting the market to avoid further losses, as they are unable to cover their costs at the current market price.

If Dorothy's Doughnuts Is a Perfectly Competitive Firm and Is