process of reducing production in response to a sustained pattern of losses is called exit. The following Clear It

Up feature discusses where some of these losses might come from, and the reasons why some firms go out of

business.

CLEAR IT UP

Why do firms cease to exist?
Can we say anything about what causes a firm to exit an industry? Profits are the measurement that determines

whether a business stays operating or not. Individuals start businesses with the purpose of making profits. They

invest their money, time, effort, and many other resources to produce and sell something that they hope will give

them something in return. Unfortunately, not all businesses are successful, and many new startups soon realize that

their “business venture” must eventually end.

In the model of perfectly competitive firms, those that consistently cannot make money will “exit,” which is a nice,
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