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Question
Macroeconomics
Posted 3 months ago

Skin serum is produced in a perfectly competitive increasing cost industry, and firms currently earn positive economic profits.

What will happen to the number of firms, the market price, and each firm's marginal cost in the long run?

Choose 1 answer:
(A) The number of firms will decrease; the market price will decrease; marginal cost will decrease.
(B) The number of firms will increase; the market price will decrease; marginal cost will decrease.
(c) The number of firms will increase; the market price will increase; marginal cost will increase.

D The number of firms will decrease; the market price will decrease; marginal cost will shift down.
(E) The number of firms will stay the same; the market price will stay the same; marginal cost will stay the same.
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Answer from Sia
Posted 3 months ago
Solution
a
Positive Economic Profits in Perfect Competition: In the short run, positive economic profits attract new firms to enter the market
b
Long Run Equilibrium: In the long run, the entry of new firms causes the market supply curve to shift right, leading to a decrease in market price until firms earn zero economic profit
c
Increasing Cost Industry: As firms enter an increasing cost industry, the input prices increase due to higher demand, leading to an increase in each firm's marginal cost
Answer
(C) The number of firms will increase; the market price will increase; marginal cost will increase.
Key Concept
Long Run Adjustment in Perfect Competition
Explanation
In a perfectly competitive market with positive economic profits, new firms will enter in the long run, increasing the number of firms and driving up marginal costs in an increasing cost industry, while the market price will decrease until firms earn zero economic profit.

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