Asked by Kenrick Mendez on Jun 07, 2024
Verified
What happens in a perfectly competitive industry when economic profit is greater than zero?
A) Existing firms may get larger.
B) New firms may enter the industry.
C) Firms may move along their LRAC curves to new outputs.
D) There may be pressure on prices to fall.
E) All of the above may occur.
Perfectly Competitive Industry
A perfectly competitive industry is a market structure where many firms offer identical products, there are no barriers to entry or exit, and each firm has no influence over the market price.
Economic Profit
The distinction between overall income and all expenses, encompassing both direct and assumed costs.
LRAC Curves
Long-Run Average Cost curves, which show the average cost per unit of output when all inputs, including capital, are variable, illustrating economies or diseconomies of scale.
- Comprehend the essential conditions for sustaining long-run equilibrium in conditions of perfect competition and their consequences for the ingress and egress of companies.
Verified Answer
TA
Tahmid Ahmed ChowdhuryJun 09, 2024
Final Answer :
E
Explanation :
In a perfectly competitive industry, when economic profits are greater than zero, it attracts new firms into the industry, existing firms might expand, firms adjust their outputs along their long-run average cost (LRAC) curves, and the increased competition and supply tend to push prices down, leading to all of the mentioned outcomes.
Learning Objectives
- Comprehend the essential conditions for sustaining long-run equilibrium in conditions of perfect competition and their consequences for the ingress and egress of companies.