Question

Question 7 5 pts If the typical form in a perfectly competitive market is currently earning a 5% economic pront, what will happen in this market in the long run? O new firms will enter until the economic profits have disappeared. firms will exit until the economic profit reaches 10% firms will neither enter norexit, since 5% economic profit is enough to maintain the existing number of firms in the market. It depends on the rate of normal profit in this market

Answer 1

Ans: new firms will enter until the economic profit disappeared.

Explanation:

When the existing firms earn positive economic profit, this will attract new firms to enter into the market. When new firms enter into the market, aggregate supply will increase which leads to decrease in market price. In the long run, the new firms will continue to enter into the industry and price continue to decrease until the typical firms earn zero economic profit or the economic profit disappeared.