Question

The almond growers begin using a new technique of harvesting almonds which increases the pounds that are supplied in the market. If the almond market was originally in long-run equilibrium, we would expect economic profits of existing firms to

A: decrease which leads to some firms exiting the almond market.

B: increase which leads to new firms entering the almond market.

C: decrease which leads to new firms entering the market.

D: increase which leads to some firms exiting the market.

Answer 1

In long run equilibrium, the profits earned is zero. Now since adaption of new technology lowers the cost that the Industry incurs , the initial long run equilibrium is dusturbed and the industry starts to earns positive profit. This positive profit incentivises news firms to enter into the industry, more and more firms enters the industry increasing the quantity and hence plunging down the price, till profits are back to zero and the economy settles in another long run equilibrium

Answer is option b