When economic profit exists in a perfectly competitive market,we expect
A) existing firms to join forces and increase their prices so as to earn an even larger profit.
B) existing firms to compete and lower their prices in order to gain market share.
C) existing firms to join forces to prevent other firms from entering the industry.
D) new firms to enter the industry,causing the market price to eventually fall.
E) new firms to enter the industry,causing the market price to rise even higher.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, economic profit attracts new firms to enter the industry. As new firms enter, market supply increases, causing the market price to eventually fall. This will cause existing firms to earn less profit or even incur losses, leading to some firms exiting the industry until economic profit no longer exists. Therefore, when economic profit exists in a perfectly competitive market, we expect new firms to enter the industry, causing the market price to eventually fall.

When Economic Profit Exists in a Perfectly Competitive Market,we Expect