Question

In competitive settings, profits will lead firms to _________________ and losses will lead firms ___________, so the incentives for producing at low cost and coming up with new ways of pleasing customers are strong.

Answer 1

The correct answer is: enter the market; exit the market.

Step-by-step explanation:

In a perfectly competitive market, there is no restriction on entry and exit of firms. So profits will attract other potential firms to join the market. And when the existing firm incurs losses it will cause them to stop operating and exit the market.

Because of this, the firms in competitive settings are motivated to produce at a low cost and they come up with new ideas to please customers so that they earn a profit.