Suppose a perfectly competitive market is in short-run equilibrium.Firms that are incurring a ________ economic loss ________.
A) persistent; increase their output to increase their profit
B) temporary; exit the industry
C) temporary; decrease their production but definitely stay open
D) persistent; exit the industry and shift the market supply curve leftward
E) persistent; exit the industry and shift the market supply curve rightward

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms that are incurring a persistent economic loss will eventually exit the industry. This is because they are unable to cover their variable costs and remain profitable in the long run. As these firms exit the market, the market supply curve will shift leftward, reducing the overall supply in the market and potentially leading to higher prices and profits for the remaining firms.

Suppose a Perfectly Competitive Market Is in Short-Run Equilibrium