Question

Suppose that some firms in a perfectly competitive market are making positive economic profits. Which one of the
following would not be expected to occur?

A. The supply curve will shift to the right.

B. More firms would enter the market

C. The equilibrium quantity sold will fall

D. The equilibrium price will fall.

E. All firms’ economic profits would eventually be driven to zero at equilibrium.

Answer 1

If some of the firms in a perfectly competitive market are making positive economic profits, then we would expect more firms to enter the market and hence the supply will increase which would shift the supply curve to the right. As more firms would enter, there will be competition and hence, the prices will come down and this will lead to zero economic profits for the firms when the market is in equilibrium. So, the only thing which we do not expect to occur is the fall in the equilibrium quantity sold. So, option C is the correct answer.

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