Continued losses in an industry will cause some ﬁrms to reduce output or eventually leave the industry.

Question

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If a firm continues to experience losses, it may not be sustainable for them to maintain their current level of output. They may have to reduce their output to cut costs or eventually exit the industry altogether to avoid further losses. This is a common phenomenon in competitive industries where firms have little pricing power and must operate at low profit margins.

Continued Losses in an Industry Will Cause Some ﬁRms to Reduce