The following figure shows equilibrium at the industry and firm level.Figure 10.6
In the figure,
S 1 , S 2 , S 3 are the market supply curves.D 1 and D 2 are the market demand curves.MC is the marginal cost curve of the firm.MR 1 and MR 2 are the marginal revenue curves of the firm.ATC is the average-total-cost curve of the firm.
-Above-normal profits earned by existing firms in a perfectly competitive market will eventually lead to:

Question

The following figure shows equilibrium at the industry and firm level.Figure 10.6
  In the figure,
S 1 , S 2 , S 3 are the market supply curves.D 1 and D 2 are the market demand curves.MC is the marginal cost curve of the firm.MR 1 and MR 2 are the marginal revenue curves of the firm.ATC is the average-total-cost curve of the firm.
-Above-normal profits earned by existing firms in a perfectly competitive market will eventually lead to:

Quizplus · Accepted Answer

Above-normal profits in a perfectly competitive market will attract new firms to enter the market, which will increase the market supply and lead to a decrease in price, eroding the profits of the existing firms. Eventually, the market will reach a new long-run equilibrium where all firms earn only normal profits. Therefore, the entry of new firms into the market is the most likely outcome.

The Following Figure Shows Equilibrium at the Industry and Firm