In the long run, firms will exit a perfectly competitive industry if:

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, firms will enter if there are positive economic profits, leading to an increase in supply and a decrease in price. However, as the market reaches equilibrium, price will fall until firms are only earning zero economic profit. If economic profit becomes negative, meaning the firm is not covering its opportunity cost, then it will exit the industry in the long run. Therefore, excess profits being less than zero will lead to firms exiting the industry.

In the Long Run, Firms Will Exit a Perfectly Competitive