Consider a perfectly competitive market experiencing good times.In the short run,the equilibrium price will ________ and firms will earn a(n)________.
A) increase; economic profit as the new price exceeds average total cost
B) increase; normal profit as the new price exceeds average total cost
C) decrease; economic loss as new firms enter the industry
D) decrease; economic profit as firms exit the industry
E) may increase or decrease; normal profit depending on their costs

Question

Quizplus · Accepted Answer

In a perfectly competitive market during good times, the demand for goods increases, leading to an increase in the equilibrium price. Firms will earn an economic profit because the new, higher price exceeds their average total cost, attracting new firms into the industry in the long run.

Consider a Perfectly Competitive Market Experiencing Good Times