In a competitive market, the presence of short-run economic profits would, in the long run, cause economic profits to
A)disappear because market costs increase.
B)disappear because firms are able to take advantage of economies of scale.
C)continue.
D)decline but be larger than zero.
E)disappear because the market supply curve has shifted to the right.

Question

Quizplus · Accepted Answer

In a competitive market, if there are short-run economic profits, it indicates that the market price is above the long-run equilibrium price. This attracts new firms to enter the market, causing the market supply to increase and the price to decrease. As the price decreases, economic profits for each firm will decrease until they reach zero in the long run. Therefore, the presence of short-run economic profits would cause economic profits to disappear because the market supply curve has shifted to the right.

In a Competitive Market, the Presence of Short-Run Economic Profits