The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7

-If losses are incurred in a competitive industry, then over the long-run we can expect a greater quantity supplied, because market price will rise.

Question

The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7
 
-If losses are incurred in a competitive industry, then over the long-run we can expect a greater quantity supplied, because market price will rise.

Quizplus · Accepted Answer

If losses are incurred, firms will exit the market in the long-run, leading to a decrease in quantity supplied, not an increase. This is because the supply curve shifts to the left as firms exit the market, causing prices to rise until they are equal to the minimum average variable cost of the remaining firms.

The Figure Given Below Shows the Aggregate Demand and Supply