Firms are likely to enter a competitive industry when _____.
A) the market price of the good is low
B) existing ﬁrms are making supernormal proﬁts
C) the ﬁxed cost of production is high
D) the costs of economic factors of production are high

Question

Quizplus · Accepted Answer

Firms are attracted to enter a competitive industry when they observe existing firms making supernormal profits, as this indicates potential profitability for new entrants. Supernormal profits are earnings above the normal required rate of return, signaling a lucrative market opportunity.

Firms Are Likely to Enter a Competitive Industry When _____