There are currently 1,000 firms in a competitive industry. Minimum long-run average cost is $80 and price $100. Explain what will happen to price, profit, and the number of firms in this industry over time.
What will be an ideal response?
Price exceeds minimum long-run average cost, so that firms are earning an economic profit. This will induce additional entry over time. As the market supply increases (rightward shift), price will fall to minimum long-run average cost of $80. Economic profit will drop to zero.
Economics
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