Refer to Figure 23.2 for a perfectly competitive firm. Given the current market price of $100, we expect to see
A) Entry into this industry.
B) Exit from this industry.
C) No change in the number of firms in this industry.
D) Costs rise to absorb the profits earned by the firms in the industry.

Question

Refer to Figure 23.2 for a perfectly competitive firm. Given the current market price of $100, we expect to see
A) Entry into this industry. 
B) Exit from this industry. 
C) No change in the number of firms in this industry. 
D) Costs rise to absorb the profits earned by the firms in the industry.

Quizplus · Accepted Answer

At a market price of $100, the firm is earning positive economic profits. This will attract new firms to enter the industry, as they can earn similar profits. As a result, we expect to see entry into this industry.