If a typical firm in a perfectly competitive industry is earning profits, then
A)all firms will continue to earn profits.
B)new firms will enter in the long run causing market supply to decrease, market price to rise, and profits to increase.
C)new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease.
D)the number of firms in the industry will remain constant in the long run.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, if firms are earning profits, new firms will enter the market in the long run. This increases market supply, leading to a decrease in market price and a reduction in profits until firms earn normal profits.

If a Typical Firm in a Perfectly Competitive Industry Is