Perfectly competitive firms are earning economic profits at a market price of $12 and an average total cost of $10. If new firms enter and do not affect the cost for all firms, the market price will ______until it reaches ______.

Question

Quizplus · Accepted Answer

When new firms enter the market, the supply increases, causing the market price to decrease until it reaches the minimum point of the average total cost curve, which in this case is $10. Therefore, the market price will decrease until it reaches $10. Choice D is the correct choice because it is the only one that indicates a decrease in price and includes the correct price.

Perfectly Competitive Firms Are Earning Economic Profits at a Market