When a firm makes ____ profit, this sends a signal to others. More competitors would enter the business, increasing supply and driving prices ____.
A) zero economic profit; up
B) normal profit; down
C) positive accounting profit; down
D) positive economic profit; up
E) positive economic profit; down

Question

Quizplus · Accepted Answer

When a firm makes positive economic profit, it indicates that the firm is earning more than the opportunity cost of its resources, which is an attractive signal to potential competitors. As more competitors enter the market, the supply increases, leading to competition for customers, which typically drives prices down.

When a Firm Makes ____ Profit, This Sends a Signal