Question

Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market is earning positive economic profits. In the long run, as adjustments occur in the industry, we can expect the market price of ball bearings to a. increase and individual firms' profits to decreaseb. increase and individual firms' profits to increasec. decrease individual firms' profits to increased. decrease and individual firms' profits to decrease

Answer 1

Answer: Given, the ball bearing market is purely competitive. Also at the current stage the firms in this market are earning positive economic profits.

Therefore , in the long run as adjustments occur in the industry, we can expect the market price of ball bearings to decrease and individual firms' profits to decrease.

This will take place as new firms will enter the market once they analyze that the existing firms are earning positive economic profits. Thus this will lead to decrease in price of ball bearing and further will lead to decrease in profit os a firm.

Therefore, the correct option is (d)