When firms have an incentive to exit a competitive market, their exit will
A)lower the market price.
B)necessarily raise the costs for the firms that remain in the market.
C)raise the profits of the firms that remain in the market.
D)shift the demand for the product to the left.

Question

Quizplus · Accepted Answer

When firms exit a competitive market, the number of firms decreases, leading to a decrease in supply. This decrease in supply leads to an increase in price, which raises the profits for the firms that remain in the market. Therefore, choice C is the correct answer. Choice A is incorrect because the market price increases when firms exit. Choice B is incorrect because the costs for remaining firms may decrease due to less competition. Choice D is incorrect because the demand for the product is not affected by the exit of firms.

When Firms Have an Incentive to Exit a Competitive Market