Question

19. Suppose a perfectly competitive firm and industry are in long-run equilibrium and the firm earns an economic profit in the short run. Which of the following is likely to occur in the long run?

a. There will be an increase in the amount of economic profit earned by the firm.

b. The market supply curve will shift to the left, and the market price will increase.

c. The market supply curve will shift to the right, and the market price will decrease.

d. The firm will continue to earn economic profit.

e. Industry output will decrease.

Answer 1

19.

Perfectly competitive is a form of market in which there are large number of buyer and selling who are selling homogeneous good. One of the feature of this market is that there are no barriers on entry and exit of a firm.

Suppose firms are facing losses in the short run it means that some firms will exit the market which cause decrease in supply as a result price will increase until zero economic profit is earned by the each firm. Like wise, Suppose firms are earning economic profit in the short run it means that some new firms will enter into the market which cause increase in supply( supply curve shifts to right) as a result price will decrease until zero economic profit is earned by the each firm.

So the option c is the correct option.