Why do short-run profits in a perfectly competitive industry tend to disappear over time?
Economic profits tend to exist only in the short run in a perfectly competitive industry because an increase in demand causes firms to earn economic profits, attracting new firms to the industry. New firms continue to enter, increasing the market supply and reducing the price of the product, until economic profits are reduced to zero.
You might also like to view...
Refer to Figure 3-4. At a price of $10, how many units will be sold?
A) 200 B) 400 C) 600 D) 800
An increase in the price of a good will a. increase supply
b. decrease supply. c. increase quantity supplied. d. decrease quantity supplied.
Everything else equal, wages are likely to be higher when
a. the location of the job is more desirable. b. the work environment is more prestigious. c. more skill is required to perform well on the job. d. the work is safer.
People can write checks against
a. demand deposits and money market mutual funds b. demand deposits but not money market mutual funds c. money market mutual funds but not demand deposits d. neither demand deposits nor money market mutual funds