If firms in many differentiated sellers are earning economic profits:
A) new firms will enter the industry, and in the long run, all firms will break even.
B) new firms will try to enter the industry but existing firms will lower their prices and keep the new firms out.
C) new firms will try to enter the industry; however, strong barriers to entry will keep them out.
D) new firms will enter the industry and reduce the price until it is equal to marginal cost.

Question

Quizplus · Accepted Answer

In a market with many differentiated sellers, if firms are earning economic profits, new firms will be attracted to the industry due to the lack of significant barriers to entry. This will increase competition, leading to a reduction in prices and profits until firms are only earning normal profits, breaking even in the long run.

If Firms in Many Differentiated Sellers Are Earning Economic Profits