-If a firm is earning short-run economic profits shown in the above figure, in the long run

Question

Quizplus · Accepted Answer

In the short run, if a firm is earning economic profits, it signals to other firms that there are opportunities for profit in this industry. As a result, new firms will enter the industry, increasing the market supply. This shift in the market supply curve to the right leads to a decrease in the market price, as the increased supply, assuming demand remains constant, puts downward pressure on prices.

-If a Firm Is Earning Short-Run Economic Profits Shown in the Above