Suppose that some firms in a competitive industry are earning zero economic profits, while others are experiencing losses. All else equal, in the long run, we would expect the number of firms in the industry to
A)increase.
B)decrease.
C)remain the same.
D)We do not have enough information with which to answer this question.

Question

Quizplus · Accepted Answer

Firms that are experiencing losses in the long run will eventually exit the industry. This will decrease the number of firms in the industry, as the firms making zero economic profits are likely to continue producing. As a result, the remaining firms may begin to earn economic profits since there are now fewer competitors driving prices down.

Suppose That Some Firms in a Competitive Industry Are Earning