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According to the source, how do perfectly competitive firms react to losses and to profits in the long run?
AThey cut production after profits, expand after losses
BThey ignore both profits and losses entirely
CThey exit the instant any loss appears at all
DThey expand production after profits, cut back after losses
Answer & Solution
Correct answer: D. They expand production after profits, cut back after losses
1. The source contrasts how firms behave in the long run when facing profits versus losses.
2. Profits lead firms to increase production, since expanding output raises their earnings.
3. Losses lead firms to reduce production or exit the market entirely.
4. This is a long-run reaction, not an instant short-run exit the moment any loss appears.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 8 "Perfect Competition", section 8.1 | Perfect Competition and Why It Matters_
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