Answer to Question #149662 in Microeconomics for faizan

Question

2. Draw and give description of a situation where supernormal economic profits of firms attract entry in the industry. Simultaneously show the effect on the market Demand/Supply. 10 MARKS
COMPLETE LABELLING AND DESCRIPTION WILL GET FULL CREDIT.

Answer 1

Supernormal economic profits of firms attract entry in the industry, as a result market supply increases, and equilibrium price decreases until all the firms receive zero economic profits.