Where there are short-run profits, new competitors will enter the market until:
A)the minimum average cost is achieved.
B)demand increases.
C)economic profits are zero.
D)losses are incurred.

Question

Quizplus · Accepted Answer

When there are short-run profits, it implies that the market price is higher than the average total cost, allowing firms to earn economic profits. This attracts new firms into the market, increasing supply and driving down the market price. As the price decreases, economic profits for firms also decrease until they reach zero. At this point, there is no longer an incentive for new firms to enter the market, and the number of industry participants stabilizes. Therefore, economic profits are zero when new competitors have entered the market, and the answer is option C.

Where There Are Short-Run Profits, New Competitors Will Enter the Market