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Author Question: Why do short-run profits in a perfectly competitive industry tend to disappear over ... (Read 58 times)

audragclark

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on: Jun 30, 2018
Why do short-run profits in a perfectly competitive industry tend to disappear over time?

Question 2

According to the Heckscher-Ohlin theory, comparative advantage is based on:
 a. labor productivity differences.
  b. product life cycles.
  c. the availability of skilled resources.
  d. consumer tastes and preferences.
  e. the relative abundance of the factors of production.


Carissamariew

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Reply #1 on: Jun 30, 2018
Answer to Question 1

Economic profits tend to exist only in the short run in a perfectly competitive industry because an increase in demand causes firms to earn economic profits, attracting new firms to the industry. New firms continue to enter, increasing the market supply and reducing the price of the product, until economic profits are reduced to zero.

Answer to Question 2

e


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