The elimination principle illustrates the idea that:
A) above-normal profits will be eliminated by decreases in demand due to high prices.
B) losses will be eliminated by the innovation of new products.
C) above-normal profits will be eliminated by the entry of new firms into the industry.
D) losses will be eliminated by firms decreasing their costs.

Question

Quizplus · Accepted Answer

The elimination principle states that above-normal profits in a given industry will eventually be eliminated due to the entry of new firms, which increases competition and reduces profit margins. Option A is true, but it is not the premise of the elimination principle. Options B and D are not accurate because the elimination principle does not necessarily relate to losses being eliminated by either innovation or cost reduction.

The Elimination Principle Illustrates the Idea That