If a firm in a perfectly competitive industry experiences persistent losses, in the long run it should
A)shut down temporarily and wait for market conditions to change.
B)exit the industry.
C)raise its price to cover average total cost.
D)continue to operate if it can raise the demand for its product through advertising and quality improvements.

Question

Quizplus · Accepted Answer

In the long run, if a firm is experiencing persistent losses in a perfectly competitive industry, it is unlikely that market conditions will change to make the firm profitable. Therefore, the best option is for the firm to exit the industry and allocate its resources towards other profitable opportunities. Options A, C, and D are not viable solutions in the long run because temporarily shutting down, raising prices, or increasing advertising and quality improvements may not be sustainable or profitable in the long run for an uncompetitive firm.

If a Firm in a Perfectly Competitive Industry Experiences Persistent