Assume a firm is operating in a purely competitive market facing ...

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Assume a firm is operating in a purely competitive market facing an upward-sloping long-run supply curve.
 
  If the industry is currently making pure economic profit what adjustment processes would take place in this market? What would happen to the industry supply curve, equilibrium quantity and equilibrium price?

Question 2

If prices in the economy rise, then
 
  A) the purchasing power of a dollar stays constant.
  B) the purchasing power of a dollar rises.
  C) the purchasing power of a dollar declines.
  D) the purchasing power of a dollar cannot be determined.

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Answer to Question 1

The economic profit would attract entry. However, as more firms enter the market this will drive up the costs of all the firms in the industry. This will then lead to a higher equilibrium quantity and a higher price in the market.

Answer to Question 2

C

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