If firms in a perfectly competitive industry are making zero economic profit, then
|a||some of those firms will leave the industry because firms cannot persistently go without making economic profit.|
|b||new firms will enter the industry, because the new entrants would be ensured of doing as well as in their best foregone alternative.|
|c||there is no incentive for either entry or exit.|
|d||some of the firms will temporarily shut down.|
The supply curve shifts to the left as each firm will reduce its output thereby increasing price
11. Suppose that newspaper companies are now required to use recycled paper, which is more expensive than new paper. Which of the following is most likely to result if the newspaper industry is highly competitive?
12. Today, firms in a perfectly competitive market are making an economic profit. In the long run, firms will ________ the market until all firms in the market are ________.
Q10.) c.) there is no incentive for either entry or exit.
Perfectly competitive industry is characterised as a normal profit industry.
Q11.) c.) The firms' costs rise, resulting in economic losses in the short run and, hence, the industry supply curve shifts leftward in the long run.
Q12.) b.) enter; making zero economic profit
Presence of economic profits attract new firms due to no barriers to entry, this ensures only normal profits in long run.
Q13.) a.) I, II and III
Q14.) b.) MC>MR
If the expert is correct and a price decrease increases profits, MR must be greater than MC (MR > MC) at the current level of output.
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