The elimination principle, a general feature of competitive markets, tells us that:
A) below-normal profits may be permanent.
B) above-normal profits may be permanent.
C) above-normal profits are temporary.
D) above-normal profits result in firms exiting the industry.

Question

Quizplus · Accepted Answer

Above-normal profits attract new firms to the industry, increasing supply and competition, which eventually drives profits down to normal levels, making above-normal profits temporary.

The Elimination Principle, a General Feature of Competitive Markets, Tells