In a competitive market where firms are earning economic profits,which of the following should be expected as the industry moves to long-run equilibrium,ceteris paribus?

Question

Quizplus · Accepted Answer

In the long-run, other firms will enter the industry attracted by the economic profits. This increased competition will drive down prices and decrease the economic profits of existing firms. As a result, some firms will exit the industry until the remaining firms are earning zero economic profits. This process will continue until the industry reaches a long-run equilibrium characterized by lower prices and more firms.

In a Competitive Market Where Firms Are Earning Economic Profits,which