Asked by Arika DeCara on Jun 12, 2024
Verified
If perfect competitors are making profits
A) new firms will enter the industry and market price will fall.
B) new firms will enter the industry and market price will rise.
C) firms will leave the industry and market price will rise.
D) firms will leave the industry and market price will fall.
Perfect Competitors
describes a market structure where many firms sell identical products, and no single seller has any influence over market price.
Market Price
The current price at which a good or service can be bought or sold in the marketplace.
- Describe the impact of market entry and exit on market equilibrium in perfect competition.
Verified Answer
AT
Alicia Tijerina
Jun 13, 2024
Final Answer :
A
Explanation :
The presence of profits in a perfectly competitive industry indicates that there are entry opportunities available. Since there is free entry and exit in a perfectly competitive market, new firms will be attracted to the industry, increasing supply and leading to a fall in market price. This entry process will continue until profits are driven to zero in the long run. Therefore, option A is the appropriate choice.
Learning Objectives
- Describe the impact of market entry and exit on market equilibrium in perfect competition.