Question

What happens in a perfectly competitive industry when economic profit is greater than zero? existing firms may expand their operations firms may move along their lrac curves to new outputs there may be pressure on the market price to fall new firms may enter the industry and all of the above?

Answer 1

What happens in a perfectly competitive industry when economic profit is greater than zero?

The answer is all of the above. If a perfectly competitive industry has economic profit greater than zero then existing firms may expand their operations, firms may move along their LRAC curves to new outputs, there may be pressure on the market price to fall and new firms may enter the industry.

A perfectly competitive market is a hypothetical market where competition is at the highest level. Economists that study perfect competition state that this would be the best outcome of a market for consumers and society because each group would be evenly competing for consumers.

Answer 2

Options:

• existing firms may expand their operations
• firms may move along their LRAC curves to new outputs
• there may be pressure on the market price to fall
• new firms may enter the industry
• all of the above

Answer:

All of the above

Explanation:

An industry is said to be perfectly competitive when competition in the industry structure is at its highest possible level. A perfect competitive industry is characterized with a balance in the quantity supplied for every product or service; (this includes factor such as labor) equals the quantity demanded at the current price

Some of the features of a perfectly competitive industry or market are:

• No barriers to entry or exit
• All firms sell an similar product
• Room for existing firms to expand their business operations
• A large number of producers and consumers
• Market share has no influence on prices.