If a typical firm in a perfectly competitive industry is incurring losses, then
A)all firms will continue to lose money.
B)some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms.
C)some firms will exit in the long run, causing market supply to decrease and market price to fall, increasing losses for the remaining firms.
D)some firms will enter in the long run, causing market supply to increase and market price to rise, increasing profit for all firms.

Question

Quizplus · Accepted Answer

In the long run, firms that are incurring losses in a perfectly competitive industry will exit the market, causing the market supply to decrease. As a result, the market price will increase, leading to increased profits for the remaining firms. Therefore, option B is the correct answer. Option A is not correct because not all firms will continue to lose money. Option C is not correct because a decrease in market supply will cause the market price to rise, not fall. Option D is not correct because new firms entering the market will increase market supply, which would lead to lower prices and decreased profits for all firms, rather than increasing profits.

If a Typical Firm in a Perfectly Competitive Industry Is