When firms in a price-taker market are temporarily able to charge prices that exceed their production costs,
A) the firms will earn long-run economic profit.
B) additional firms will be attracted into the market until price falls to the level of per-unit production cost.
C) the firms will earn short-run economic profits that will be offset by long-run economic losses.
D) the existing firms must be colluding or rigging the market, otherwise, they would be unable to charge such high prices.

Question

Quizplus · Accepted Answer

In a price-taker market, if firms can charge prices above production costs, it attracts new firms, increasing supply and driving prices down to production cost levels in the long run.

When Firms in a Price-Taker Market Are Temporarily Able to Charge