Homework Answers
A - When the firms were incurrring the economic profits , other firms were attracted towards the entry into the market in search of profits. As they entered , demand for exisiting firms declined. As a result price dropped and they would have to suffer losses.
B - As a result.of this , now the firms earning losses will exit the market. This condition would be P < ATC. When the firms will exit the market , demand for exisiting firms will rise. Hence the prices will.rise and loss will be covered up.
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