Question

When firms exit a market, the _________, causing individual firms’ profits to _________.

Answer 1

Answer:

Long run supply curve shifts to the left; decrease

Explanation:

In the short run, if firms are making economic loss, in the long run, they exit the industry. Firms cannot exit the industry in the short run because in the short run most factors of production are fixed.

When firms exit the industry, the quantity supplied falls and the supply curve shifts to the left. Because of the fall in supply, prices rise, revenue and profit rise all things being equal.

I hope my answer helps you

Answer 2

Answer:

When firms exit a market, the short-run market supply curve shifts left, causing individual firms’ profits to increase.

Explanation:

The process of free entry and exit of firms is in a sequence as explained under-

1. If there is higher demand in the market of the product as compared to its supply, then each firm in the market will receive higher price for its product.
2. This will increase the prices of the product, enabling higher profits for each firm. This will make the industry attractive, enabling the introduction of newer firms in the market.
3. When the new firms enter the industry, the prices of the product in the market will drop due to higher competition, now present currently. This will lead to lowering of profits for the firms in the industry.
4. This will make the industry non-attractive and thereby the less competitive and less effective firms will exit the market in the short run.
5. This exit of firms from the industry, will lead to higher prices again due to less supply of product in the market as compared to its demand. Hence, the profits of the firms present in the industry will increase.

Thus, it can be concluded that when firms exit a market, the short-run market supply curve shifts left, causing individual firms’ profits to increase.