In an environment of free entry and exit,the presence of positive economic profits in an industry
A) indicates a market failure.
B) can never occur.
C) induces a reallocation of resources out of other industries and into the one with positive economic profit.
D) can be sustained indefinitely.
E) allows one firm to dominate the industry.

Question

Quizplus · Accepted Answer

Positive economic profits in an industry signal to businesses outside of that industry that there is an opportunity to earn greater profits. Therefore, businesses will reallocate resources from other industries and enter the industry with positive economic profits, leading to increased competition and ultimately eroding those profits. This process will continue until economic profits are reduced to zero, so economic profits in a free entry and exit environment cannot be sustained indefinitely.

In an Environment of Free Entry and Exit,the Presence of Positive