In the long run, firms enter an industry when
A)firms in the industry realize positive economic profits.
B)firms in the industry realize economic losses.
C)other firms exit the industry.
D)economic profits in the industry are zero.
E)firms in the industry become price-makers.

Question

Quizplus · Accepted Answer

Firms enter an industry when they perceive the opportunity for positive economic profits. This is because economic profits signal that the industry is currently generating a return on investment that is higher than the opportunity cost of capital. As new firms enter the industry, the supply of goods or services increases, which typically puts downward pressure on prices and reduces economic profits. Over time, firms that are unable to earn positive economic profits may exit the industry, which can create opportunities for new entrants to earn profits once again.

In the Long Run, Firms Enter an Industry When