In a perfectly competitive market if losses are incurred, then over the long run,if cost curves do not change?

Question

a. market supply will shift to the right.

b. economic profits will be earned by firms.

c. each firm’s production level will rise.

d. market price for the product will fall.

e. industry output will expand.

Answer 1

If one studies economics as chemistry of wealth and when one studies general property of wealth that WEALTH ALWAYS MOVES FROM HIGHER CONCENTRATION TO LOWER CONCENTRATION TILL EQUILIBRIUM IS ACHIEVED, (law of equilibrium) we find that when losses occur firm stops production or stops trading in the commodity because it is against nature of wealth to move from lower concentration to higher concentration. You can not imagine heat moving from cold water to hot water. You can not expect air moving from atmosphere to a baloon on its own. Similarly wealth can not move from lower to higher concentration. No sooner losses appear firms leave the field.

Answer 2

d

Answer 3

b. economic profits will be earned by firms

Only "B" seems reasonable, some firms may leave market due to loses thus giving opportunity for other remaining firms earn temporary profits (though long-run here is doubtfull due to definition and assumptions for perfect competition).

a, c, d and e have same meaning (higher output).