Since this is a market with free entry and exit, losses will lead to exit from the industry. From the standpoint of the remaining firms, their demand and marginal revenue curves shift out since they now face fewer competitors (it also probably becomes a bit more inelastic). Exit will continue until profits are zero. This increase in demand means that remaining firms will end up selling more at a higher price. In the graph to the right we show price increasing from 20 to 23 and output increasing from 15 to 22.

1. Charge a higher price and produce a larger quantity
2. Charge a higher price and produce a smaller quantity. This would require a shift back in the marginal cost curve, not exit due to losses.
3. Charge a lower price and produce a smaller quantity This would occur if firms entered the industry, which only occurs if the firms are profitable, not incurring losses.
4. Charge a lower price and produce a larger quantity This would require a shift out in the marginal cost curve, not exit due to losses.
5. The long run result is the same as original result. No industry is going to survive in the long run incurring losses so this can't be correct.