Suppose that there are short-run economic profits in a perfectly competitive market. What do we expect would happen to cause these profits to be eliminated in the long run?
A) the entry of new firms
B) inefficiencies that increase costs
C) strong barriers to entry
D) higher prices

Question

Quizplus · Accepted Answer

In a perfectly competitive market, short-run economic profits attract new firms because there are no barriers to entry. As new firms enter the market, the supply increases, leading to a decrease in the price of the good. This process continues until economic profits are eliminated, and firms earn only a normal profit in the long run.

Suppose That There Are Short-Run Economic Profits in a Perfectly