If typical firms in a competitive industry are earning economic profits,the industry
A)is in a long-run equilibrium.
B)has too many resources allocated to it.
C)must be experiencing an increase in monopoly power.
D)can be expected to experience the entry of new firms.
E)is allocatively efficient.

Question

Quizplus · Accepted Answer

If firms are earning economic profits in a competitive industry, it indicates that there is an opportunity for new firms to enter the industry and compete for the profit. This process will continue until the economic profits are driven to zero in the long run, which is the condition for long-run equilibrium. Thus, the entry of new firms is expected in such a situation, making D the correct answer.

If Typical Firms in a Competitive Industry Are Earning Economic