Economic profit creates an incentive for other perfectly competitive firms to
Question
Economic profit creates an incentive for other perfectly competitive firms to
Solution
Enter the market.
Here's the step by step explanation:
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Economic profit is the difference between total revenue and total cost, including both explicit and implicit costs.
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In a perfectly competitive market, firms are price takers and they can freely enter or exit the market.
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When existing firms in the market are making an economic profit, it signals that the industry is profitable.
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This profitability creates an incentive for other firms to enter the market to also earn a profit.
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As new firms enter the market, the supply in the market increases which leads to a decrease in the market price.
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The decrease in price reduces the economic profit of the existing firms in the market.
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The process continues until there are no more economic profits being made in the industry, which is a state of long-run equilibrium in a perfectly competitive market.
Similar Questions
profit creates an incentive for other perfectly competitive firms to enter the market. (Use one word for the blank.)
How do firms in a perfectly competitive market respond to economic profits in the market?Firms exit the marketThe number of firms remains the sameFirms enter the marketFirms increase the price of their product
If firms in a perfectly competitive industry are earning economic profits (select all that apply), We expect firms in this industry to earn smaller economic profits in the future. We expect to see higher cost firms exit this industry to seek greater return on their capital in other markets. We expect new producers to stop entering the market when market price equals minimum average total cost. Consumers' willingness to pay above market rates will create inefficiency in long-run production.
In the long run, a representative firm in a monopolistically competitive industry will end upMultiple Choicehaving an elasticity of demand that will be less than it was in the short run.having a larger number of competitors than it will in the short run.producing a level of output at which marginal cost and price are equal.earning a normal profit, so zero economic profit.
Fill in the Blank QuestionFill in the blank question.Economic profit is the reward to residual claimants for assuming financial .
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