Which of the following is true?
A) When firms in a price-taker market are earning zero economic profit, they will shut down.
B) When firms in a price-taker market are earning positive economic profits, new firms will enter the industry causing the market price to fall until the firms in the industry are earning only zero economic profit.
C) When firms in a price-taker market are earning economic losses, some firms will exit the industry causing the market price to rise until the remaining firms are earning zero economic profit.
D) Both b and c are true.

Question

Quizplus · Accepted Answer

In a price-taker market, where individual firms have no influence on the market price, firms will earn zero economic profit in the long run due to the entry and exit of firms. If firms are earning positive economic profit, new firms will enter the industry, increasing the supply of the product and causing the market price to fall until firms are earning only zero economic profit. On the other hand, if firms are earning negative economic profit (economic losses), some firms will exit the industry, decreasing the supply of the product and causing the market price to rise until the remaining firms are earning zero economic profit. Therefore, both options B and C are true.

Which of the Following Is True