Author Question: Assume a competitive market has firms earning large economic profits. What is expected to happen ... (Read 90 times)

joesmith1212 · **on:** Jun 30, 2018

Assume a competitive market has firms earning large economic profits. What is expected to happen over time in this competitive market and to firm's profits?

Question 2

Marginal utility is measured by:
a. a ray from the origin to a point on the total utility curve.
b. the change in total utility for a 1-unit change in the quantity consumed.
c. total utility divided by total quantity consumed.
d. the first utility minus the last utility.
e. average utility multiplied by the total quantity consumed.

bookworm410 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Economic profits will attract new firms into the market. This increases market supply and decreases market price. The demand curve facing firms will decline (shift downward). Profits will decline until a zero economic profit (a normal profit) is earned. In the long run, competitive firms can earn only a normal profit.

Answer to Question 2

b