Circle a correct choice in bold print to provide a complete and consistant answe

Question

Circle a correct choice in bold print to provide a complete and consistant answer to this paragraph. Base your answer on the first sentance.

Perfectly competitive firms are making a economic profits in the short run. This will/will not attract other firms to enter the market. The industry supply will likely decrease/increase, which will lower/raise the market price. Thus, each firm will then have to increase/decrease production. This is becuase each firm in a perfectly competitive market is a price maker/price taker. This will continue until all firms are making a large/zero economic profits. If firms are making positive/negative economic profits in the short run, this will induce some firms to enter/exit the market in the long run. The industry supply will most likely decrease/increase, which will raise/lower the market price. This will continue unitl the firms that are left are willing to accept large/zero economic profits.

Explanation / Answer

Perfectly competitive make economic (excess) profits in short run, which will attract other firms. As more firms enter the market, industry supply will likely increase (due to presence of more firms), which will lower market price.

So, each firm will decrease production (being faced by lower price). This is because, each firm is a price taker (so they cannot increase or decrease price) This will continue until all firms are making zero economic profits.

If firms are making negative profit (loss) in long run, some firms will exit the market (not willing or able to bear the loss). So, industry supply will likely decrease which will raise price (since shortage will start). This will continue until the left-over firms are willing to accept zero economic profits.

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