Question

Assume that the market for bottled water is purely competitive. Currently, firms selling bottled water are earning normal profits. In the long run, we can expect this market's

supply curve and demand curve to remain unchanged

demand curve to decrease

supply curve to increase

demand curve to increase and supply curve to decrease

Answer 1

Assume that the market for bottled water is purely competitive. Currently, firms selling bottled water are earning normal profits. In the long run, we can expect this market's

Supply curve and demand curve to remain unchanged.

In the short run the firms are expected to get economic profits. Economic profits attract other firms to enter into the market in the long run. As a result in the long run supply changes as per the demand and the industry fixes the price where demand equals to supply. The price also equals to the average cost indicating a normal profit.

In the above situation the firms are already getting normal profits. It otherwise means there will not be any entry and exit of the firms when they will move to the long run. There for in the long run we can expect that the supply and demand curves will remain unchanged.