Consider a short-run PC market where firms are earning positive economic profit. In the long-run, we...
Consider a short-run PC market where firms are earning positive economic profit. In the long-run, we would expect:
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Firms to enter this market, drive price down, and earn zero economic profit |
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Firms to enter this market, drive price down, and keep economic profit just above zero |
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Firms to exit this market searching for higher profit, driving price up and increasing profit for the firms that stay |
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Firms to exit this market searching for higher profit, driving price down and decreasing profit for the firms that stay |
Homework Answers
Answer
Option 1
Firms to enter this market, drive the price down, and earn zero economic profit
The profit in the market attracts new firms up to the economic profit is zero in the long run as the entry and exit in the market is free and the higher return attracts new firms.
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