When market conditions in a competitive industry are such that firms cannot cover their total production costs, then
A)the firms will suffer long-run economic losses.
B)the firms will suffer short-run economic losses that will be exactly offset by long-run economic profits.
C)some firms will exit the market, causing prices to rise until the remaining firms can cover their total production costs.
D)all firms will go out of business, since consumers will not pay prices that enable firms to cover their total production costs.

Question

Quizplus · Accepted Answer

In a competitive industry, firms that cannot cover their total production costs will experience losses. As a result, some firms may decide to exit the market, causing prices to rise as the supply decreases. Eventually, the remaining firms will be able to cover their total production costs since the market will adjust to the new equilibrium price. This process is known as the "invisible hand" of the market, and it ensures that resources are allocated efficiently. Therefore, choice (C) is the best answer.

When Market Conditions in a Competitive Industry Are Such That