Assume a competitive market has firms earning large economic profits. What is expected to happen over time in this competitive market and to firm's profits?
What will be an ideal response?
Economic profits will attract new firms into the market. This increases market supply and decreases market price. The demand curve facing firms will decline (shift downward). Profits will decline until a zero economic profit (a normal profit) is earned. In the long run, competitive firms can earn only a normal profit.
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A) counted; overstate B) counted; understate C) not counted; overstate D) not counted; understate
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A) Worker tastes and preferences B) Population of the concerned region C) Opportunity costs faced by the workers D) Price of the final good that the labor is used to produce