If firms in a competitive industry are earning positive economic profits,in the long run we expect

Question

Quizplus · Accepted Answer

In a competitive industry, positive economic profits will attract new firms to enter the industry. This will increase the supply of the product in the market, causing the supply curve to shift to the right. As a result, industry output will increase and the price of the product will fall. This process will continue until economic profits are driven to zero in the long run. Therefore, option A is the correct answer. Option B is not possible because lowering prices would lead to further reduction in the firm's profits. Option C is incorrect because a shift in the demand curve would not affect the profits of existing firms. Option D is also incorrect because MC pricing will ensure that firms earn normal profits, but not economic profits. Option E is not possible because government intervention in a competitive industry would disrupt the competitive forces that ensure economic efficiency.

If Firms in a Competitive Industry Are Earning Positive Economic