Question

a. Due to high demand and high prices, profits in the carpet-painting industry are at all-time highs. Since the carpet-painting industry is perfectly competitive, this will cause firms to in the long run (enter merge celebrate or exit) choose one

b. You observe high profits in the perfectly competitive pencil eraser industry. In the long run, you expect those profits to ( fall rise stay the same or attract more customers) choose one

c. Due to high demand and high prices, profits in the carpet-painting industry are at all-time highs. Since the carpet-painting industry is perfectly competitive, this will cause firms to *celebrate  exit  merge or enter) in the long run. Choose one

d. You observe high profits in the perfectly competitive pencil eraser industry. In the long run, you expect those profits to (stay the same  rise  fall  attract more customers) Choose one

Answer 1

(a) Enter

In perfect competition, entry and exit are free. Since firms are making short run profit, new firms will be attracted by the profit and enter the market.

(b) Fall

In long run, due to entry of new firms, profit of all firms will decrease (and will eventually become zero).

(c) Enter

In perfect competition, entry and exit are free. Since firms are making short run profit, new firms will be attracted by the profit and enter the market.

(d) Fall

In long run, due to entry of new firms, profit of all firms will decrease (and will eventually become zero).