Final answer:
The 'death spiral' is a cycle where a company raises prices to cover costs, leading to reduced sales and further cost increases, and can ultimately result in the company going out of business.
Step-by-step explanation:
The process described in the question is known as a death spiral. It occurs when a company attempts to recover losses by increasing prices, which leads to a reduction in sales volume. That, in turn, causes costs per unit to rise because of reduced economies of scale, prompting a new round of price increases and further sales decline. This vicious cycle continues until the company ultimately goes out of business. When businesses face sustained losses, they may go through the process of exit, which refers to the long-run decision to cease production and leave the market. This can be the result of various factors, including increased costs of production such as wages, or an inability to cover even their variable costs in the short run. Technological improvements, on the other hand, can initially lower production costs and lead to higher profits, though such profits may eventually return to normal due to increased competition.