Final answer:
Business exits are sometimes a necessary evil if a market-oriented system is going to offer a flexible mechanism for satisfying customers, keeping costs low, and inventing new products.
Step-by-step explanation:
In the model of perfectly competitive firms, those that consistently cannot make money will "exit," which is a nice, bloodless word for a more painful process. When a business fails, after all, workers lose their jobs, investors lose their money, and owners and managers can lose their dreams. Many businesses fail.
The U.S. Small Business Administration indicates that in 2011, 534,907 new firms "entered," and 575,691 firms failed. Sometimes a business fails because of poor management or workers who are not very productive, or because of tough domestic or foreign competition. Businesses also fail from a variety of causes. For example, conditions of demand and supply in the market may shift in an unexpected way, so that the prices that a business charges for outputs fall or the prices for inputs rise.
With millions of businesses in the U.S. economy, even a small fraction of them failing will affect many people and business failures can be very hard on the workers and managers directly involved. However, from the standpoint of the overall economic system, business exits are sometimes a necessary evil if a market-oriented system is going to offer a flexible mechanism for satisfying customers, keeping costs low, and inventing new products.