Question

It is not likely that firms in pure competition charge excessive prices and make excessive profits in the long run because

A: firms in pure competition have barriers to entering the industry. Therefore, if they make excessive profits in the short run, competitors will enter the industry, and this will cause them to lose money in the long run

  

B: there are only a few firms in this industry, so revenue is usually limited.

  

C: firms in pure competition are generally not well-known to consumers, because their advertising budgets are limited.

D: firms in pure competition have barriers to entering the industry. Therefore, if they make excessive profits in the short run, there are barriers to making additional profits in the long run.

E: if firms in pure competition make excessive profits in the short run, then new firms will enter the industry, supply will increase, and the price will come down.

Answer 1

E: if firms in pure competition make excessive profits in the short run, then new firms will enter the industry, supply will increase, and the price will come down.

Pure competition is a form of market with no barriers to entry of new firms. There are large number of buyers and sellers in the market. All sellers sells the identical product and consumers are fully aware of it.