When firms exit an industry,
A)firm profits typically fall.
B)market supply decreases, pushing market price higher.
C)market supply decreases, decreasing the firm's output price.
D)demand decreases and economic profits continue to decline.
E)market supply decreases, increasing price and bringing firms back into the industry.

Question

Quizplus · Accepted Answer

When firms exit an industry, the total market supply decreases, which causes a shift in the supply curve to the left. This results in a higher market price as supply cannot meet demand. Therefore, the firms that remain in the industry may benefit from higher prices.

When Firms Exit an Industry