Perfectly competitive firms are earning economic profits at a market price of $10 and an average total cost of $8. If new firms enter and increase the average total cost for all firms, the market price will _ _______ until _ ______.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, if firms are earning economic profits, new firms will enter the market. This increases supply, leading to a decrease in the market price. The process continues until economic profits are zero, meaning price equals average total cost.

Perfectly Competitive Firms Are Earning Economic Profits at a Market