If firms in a competitive market are earning above-normal profits, the elimination principle states that new firms will enter the market and drive profits to normal.

Question

Quizplus · Accepted Answer

This is because in a competitive market, firms have little control over the market price and there are no barriers to entry. Therefore, new firms can easily enter the market and compete with existing firms, which will increase the supply of goods or services and decrease the market price, driving profits down to normal levels.

If Firms in a Competitive Market Are Earning Above-Normal Profits