Question

If economic profits are currently being earned by firms in a perfectly competitive market, in the...

If economic profits are currently being earned by firms in a perfectly competitive market, in the long run we can expect:

Group of answer choices

new firms to enter the business

the market supply curve to shift to the left

the market price to rise

a substantial economic profit to be earned by firms

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Answer #1

Answer. (a) new firms to enter the business

Explanation: In a perfectly competitive market, there are a large number of sellers. This is because there are very less or no barriers to entry. Now as mentioned in the question, if currently each firm that produces a product is earning economic profits, i.e. positive profits, then potential investors will observe this. Then they will also want to invest and start the same business so as to earn profits. So many new firms will keep on joining. Thus in the long run, firms will join in until the profits fall to 0, and then no more new investors would be attracted.

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