Final answer:
To address business failure and adapt in a competitive market, businesses should adapt strategies and innovate, seek cost-efficient production methods, and remain flexible in their operations, including production levels and price setting.
Step-by-step explanation:
Businesses should address business failure by adapting strategies and innovate to be competitive in the dynamic market environment. When a company faces the scenario where one input becomes relatively more expensive, firms may either look for alternative inputs that are less costly or innovate their production processes to be less dependent on the expensive input. For example, if wages increase, leading to higher costs of production, some firms may shut down due to economic losses. This would shift the supply curve to the left and push market prices up. Conversely, with a technological improvement that leads to lower costs of production, firms can expand production, enter new markets, and adjust prices accordingly to stay competitive. This adjustment process in the market results in an increase in supply curves until profits normalize.
Overall, businesses should be prepared to expand or reduce production, adjust pricing strategies, and continually seek technological advancements to improve efficiency and reduce costs. This agility allows them to set the price they choose that reflects market conditions, and open new factories or shut them down in response to market trends.