The economic function of profits and losses is to:

• A. eliminate competition in the market
• B. ensure that all firms earn the same level of revenue
• C. guarantee that resources are distributed equally among all individuals
• D. signal to producers which goods and services should be produced or discontinued

Answer: (D)

Verified step by step guidance

1. Understand the role of profits and losses in a market economy: profits and losses act as signals to producers about consumer preferences and resource allocation.
2. Recognize that profits indicate that a good or service is valued by consumers and that resources used to produce it are being rewarded.
3. Understand that losses signal to producers that a good or service is not valued enough to cover its costs, suggesting resources should be redirected elsewhere.
4. Note that this signaling mechanism helps guide producers to increase production of goods and services that are in demand and reduce or stop production of those that are not.
5. Conclude that the economic function of profits and losses is to guide resource allocation efficiently, rather than eliminating competition, equalizing revenue, or distributing resources equally.