There are 1,000 identical firms in a price-taker industry. In the short run, total revenues of each firm exceed total costs. What will happen in the long run?
A) Nothing, because each firm is already maximizing its profits.
B) Many firms will enter the market and each firm will eventually operate at a loss.
C) Additional firms will enter the market, and price will be driven down to where each firm will be making just enough to stay in business.
D) Additional firms will enter the market, but the price will remain the same because the existing firms will not allow price to decrease.

Question

Quizplus · Accepted Answer

In the long run, the entry of additional firms will increase supply, driving the price down to the point where firms earn normal profit, covering costs but not making excess profit.

There Are 1,000 Identical Firms in a Price-Taker Industry