Suppose industry A is realizing substantial economic profits.Which of the following best describes the adjustment process which would bring about a new equilibrium?
A)Firms will leave the industry, output will fall, and product price will rise.
B)Firms will enter the industry, output will rise, and product price will rise.
C)Firms will leave the industry, output will rise, and product price will fall.
D)Firms will enter the industry, output will rise, and product price will fall.

Question

Quizplus · Accepted Answer

When an industry is realizing substantial economic profits, it attracts new firms to enter the market. This increases the total output, leading to a decrease in the product price until economic profits are eliminated and a new equilibrium is reached.

Suppose Industry a Is Realizing Substantial Economic Profits