Question

If the firms in a market are earning an economic profit, then, in the long run, the market ______ curve will shift to the ______.

• demand; right

• supply; right

• supply; left

• demand; left

Answer 1

If the firms in a market are earning an economic profit, then, in the long run, the market ______ curve will shift to the ______.

supply; right

When the firms get economic profits in the long run, that will attract the firms standing outside the industry to enter into the industry. In the long run there will not be barriers on entry and exit. Now in the long run other firms enter into the industry in anticipation of economic profit. But because of their entry the volume of output or supply increases. However the demand remains same.

The increase in supply is signified by a rightward shift of the supply curve. So answer is Market supply curve shift to the right hand sides.

Because of increase in supply the price eventually comes down and all the firms get normal profit only.