If a perfectly competitive market is in a short- run equilibrium and each firm has P SRATC, then
A) individual firms in the industry will increase their output.
B) price will fall in the short run as it is too high and firms are making economic profits.
C) the market supply curve will become less elastic.
D) existing firms will continue to earn economic profits in the long run.
E) new firms will enter the market because existing firms are earning economic profits.

Question

If a perfectly competitive market is in a short- run equilibrium and each firm has P > SRATC, then
A) individual firms in the industry will increase their output.
B) price will fall in the short run as it is too high and firms are making economic profits.
C) the market supply curve will become less elastic.
D) existing firms will continue to earn economic profits in the long run.
E) new firms will enter the market because existing firms are earning economic profits.

Quizplus · Accepted Answer

In a perfectly competitive market, if firms are earning economic profits (P > SRATC), new firms will enter the market in the long run, attracted by these profits.

If a Perfectly Competitive Market Is in a Short- Run