Question

Firms at best can only enjoy temporary periods of positive economic profits. Eventually, however, new companies will compete these profits away while driving prices down and increasing both employment and investment. This, so it goes, is the theory of Adam Smith’s invisible hand. And yet, today profitable American firms have an 80% chance of being that way 10 years later. Thirty years ago, companies who were profitable only had a 50% chance of being that way 10 years later. (a) How can this be so? Explain. (b) How can “competition” be enhanced within American industries? Explain.

Answer 1

(a) situation of industries changes in America. The possible reason behind this might be :

• Increase in competition, because of which all firms are continuously trying their best to stay profitable.
• Increase in customer retention rate by firms.

(b) competition can be enhances by introducing laws and policiee related to competition. The laws should describe rules and regulations that firms have to follow when they are in a competition. Increase I'm investment will also enhance competition. Adopting principles of globalization will also lend a hand in enhancing competition kn American industries.