Question

If firms in an industry are earning accounting profits, it follows that____

group of answer choices
a. other firms will try to enter the industry to compete away the accounting
b. firms in the industry are earning economic profits
c. firms in the industry are earning economic rent.
d. b and c
e. none of the above

Answer 1

If firms in an industry are earning accounting profits, it follows that firms in the industry are earning economic profits. Economic profits attract other firms to enter the industry and compete away the accounting profits.

Step-by-step explanation:

If firms in an industry are earning accounting profits, it follows that firms in the industry are earning economic profits (option b). Economic profits refer to the total revenue minus both explicit and implicit costs.

When accounting profits are positive, it indicates that total revenue is more than explicit costs, which suggests that there are also economic profits. Economic profits attract other firms to enter the industry and compete away the accounting profits, as stated in option a.