Suppose that some firms in a perfectly competitive market are making positive economic profits. Which one of the following would not be expected to occur? -The equilibrium price will fall -All firms’ economic profits would eventually be driven to zero at equilibrium -The supply curve will shift to the right -The equilibrium quantity sold will fall -More firms would enter the market
In the perfectly competitive market structure, there are a large number of small firms and all the firms in this market structure produces identical goods and in this market structure, all the buyers have perfect information about the good sold in the market. In this market structure, every firm is free to enter or exit, or in other words, there are no entry and exit barriers.
In this market structure, every firm produces only a minor share of the total market output and therefore every firm in this market structure acts as a price taker in the market and takes the market price of the product as given. Firms in this market structure maximize their profit by producing at an output level where the price of the good becomes equal to the marginal cost of the good.
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