If firms in a perfectly competitive industry are earning an economic profit and new firms enter...
If firms in a perfectly competitive industry are earning an economic profit and new firms enter the industry, then
A) the new firms must incur an economic loss.
B) the existing firms' economic profit decreases.
C) consumer surplus decreases.
D) there must be external benefits to consumption of the good.
E) Both answers A and B are correct.
Homework Answers
When the firms are making profits and new firms enter the market then the market supply increases which decreases the price until it is equal to the minimum ATC.
so, the existing firm's economic profit decreases.
option(B)
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