In pure competition, if the market price of the product is higher than the minimum average cost of the firms, then
A) some firms will exit the industry and the industry supply will decrease.
B) other firms will enter the industry and the industry supply will increase.
C) some firms will exit the industry and the industry supply will increase.
D) other firms will enter the industry and the industry supply will decrease.

Question

Quizplus · Accepted Answer

If the market price of the product is higher than the minimum average cost of the firms, it indicates that there are economic profits to be made in the industry. This will attract new firms to enter the industry in the long run, which will increase the industry supply. The increase in supply will eventually drive down the market price and reduce the economic profits of the firms, but in the short run, more firms will enter the industry.

In Pure Competition, If the Market Price of the Product