Question

Which of the following must be true if firms are exiting a perfectly competitive industry in the long run?

A) Firms are earning negative economic profit, causing firms to exit, the price to rise, and profits will become positive in the long run.

B) Firms are earning positive economic profit, causing firms to exit, the price to rise, and profits will become zero in the long run.

C) Firms are earning zero economic profit, causing firms to exit, the price to rise, and profits will eventually become positive in the long run.

D) Firms are earning negative economic profit, causing firms to exit, the price to rise, and profits will eventually reach zero in the long run.

Answer 1

If firms are exiting a perfectly competitive industry in the long run, it means that they are earning negative economic profit. This causes firms to exit, increases the price, and eventually results in profits reaching zero in the long run.

Step-by-step explanation:

In the long run, perfectly competitive markets will attain long-run equilibrium when no new firms want to enter the market and existing firms do not want to leave the market, as economic profits have been driven down to zero.

If firms are exiting a perfectly competitive industry in the long run, it means that they are earning negative economic profit. This causes firms to exit, increases the price, and eventually results in profits reaching zero in the long run.