Answer to Question #126290 in Microeconomics for Anosha

Question

If firms in a competitive industry incur an economic profit, what happens to supply, price, output, and economic profit in the long run?

Answer 1

When a company in a perfect market starts earning a positive economic profit, the firm will enter the market, thus shifting the supply curve. As the shifting of the supply curve starts, the equilibrium price will decline. As the price falls, the economic profits will reduce till they become zero. Additionally, when supply is impacted, output is also affected. As the price starts declining, the output will also decline.