Briefly contrast how firms in a perfectly competitive market will respond to long-run profits and losses. Include an explanation of how each response affects the price level
In the long run, firms will respond to profits through a process of entry, where existing firms expand output and new firms enter the market. Conversely, firms will react to losses in the long run through a process of exit, in which existing firms reduce output or cease production altogether. Through the processes of entry in response to profits and exit in response to losses and the resulting changes in market supply, the price level in a perfectly competitive market will move toward the zero-profit point, where the marginal cost curve crosses the average total cost curve at the minimum of the average total cost curve.
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a. True b. False.