Suppose a competitive industry has excess supply represented by a high number of firms producing surplus output. As the industry reaches long-run equilibrium, what happens to economic profits for firms in the industry?
Generally, we expect competitive industries to be making a short-run economic profit. However, there can be special situations where this does not occur because the supply in the market is too high.
Answer and Explanation: 1
In the short run, all firms will be incurring a loss as the price is too low because the supply is too high. In the long run, the firms that are...
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fromChapter 3 / Lesson 19
Learn the competitive market definition and explore characteristics of a competitive market. Study competitive market examples that illustrate these characteristics.