Assume a firm is operating in a purely competitive market facing an upward-sloping long-run supply curve

If the industry is currently making pure economic profit what adjustment processes would take place in this market? What would happen to the industry supply curve, equilibrium quantity and equilibrium price?


The economic profit would attract entry. However, as more firms enter the market this will drive up the costs of all the firms in the industry. This will then lead to a higher equilibrium quantity and a higher price in the market.

Economics

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