Asked by Angelisa Tejeda on May 11, 2024
Verified
Refer to Figure 15.1. In this industry, in the long run
A) firms will continue to earn economic profits.
B) firms will enter until all firms earn a normal profit.
C) demand for the product will decrease so that profits are decreased.
D) the government will impose price controls to eliminate any economic profits.
Economic Profits
The variance between total financial gains and total charges, taking into account both manifest and implied costs.
Long Run
A time frame during which all production elements and expenses can change, enabling complete adjustment within the industry to any alterations.
- Examine the impact of firms entering and exiting on long-term market results within monopolistic competition.
Verified Answer
DL
Daniella Lovato
May 12, 2024
Final Answer :
B
Explanation :
In the long run, firms will enter the market if existing firms are earning economic profits, leading to an increase in supply, a decrease in the market price, and a reduction in profits per firm until only a normal profit is earned. This process ensures that in the long run, firms in competitive markets will earn just a normal profit, as any economic profits attract new entrants, which then erodes these profits.
Learning Objectives
- Examine the impact of firms entering and exiting on long-term market results within monopolistic competition.