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The role of profits in the model of perfect competition is to

a. determine which firm is the best firm in the industry.
b. make it worthwhile for people to invest in the company.
c. set the optimal price.
d. signal entrepreneurs to enter the industry.

1 Answer

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The role of profits in the model of perfect competition is to signal entrepreneurs to enter the industry.

If you are trying to decide if starting a business and entering the industry is a good idea, seeing others make money will encourage you to do so. Seeing a high profit return on your potential work is helpful when deciding to enter or not. If you saw no profit, it's likely entering the industry wouldn't be a good idea.
User MFP
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