The entry of new firms into a competitive industry in the long run has the effect of

Question

Quizplus · Accepted Answer

The entry of new firms into a competitive industry will increase the supply of the product, thus decreasing the price of the product until it reaches the minimum point of the long-run average cost curve. This will eliminate economic profits for all the firms in the industry, but they will still earn normal profits. This process will also increase the equilibrium quantity. Therefore, the best choice is B, which says that the entry of new firms into a competitive industry in the long run has the effect of eliminating economic profits.

The Entry of New Firms into a Competitive Industry in the Long