Economic profits in a competitive industry are signals that

Question

Quizplus · Accepted Answer

Economic profits indicate that there is a higher demand for goods or services being produced in a particular industry than there is supply. This attracts new firms into the industry, increasing competition and bringing prices down. In a competitive market, there is little incentive for firms to continue operating inefficiently or for resources to be used in lower valued uses. Therefore, options B, C, and E are incorrect. Answer D is also incorrect as business conditions improving does not necessarily mean that economic profits are being earned in a competitive industry.

Economic Profits in a Competitive Industry Are Signals That