Firms will continue to enter a competitive industry until:

Question

Quizplus · Accepted Answer

Firms will keep entering a competitive industry until any opportunity for economic profits has been eliminated. This is because in a competitive industry, new firms entering the market will increase supply, causing the market price to decrease, leading to lower profits for all firms. The process of new firms entering the market and driving down profits will continue, until any possible profits have been competed away. A and D are incorrect because the supply curve may not necessarily be vertical, and resource employment is not a factor in determining how many firms will enter a market.  B is incorrect because if the market price falls below average variable cost, firms may shut down, but this would not directly deter other new firms from entering and competing in the market.

Firms Will Continue to Enter a Competitive Industry Until