Question

a. Due to high demand and high prices, profits in the carpet-painting industry are at all-time highs. Since the carpet-painting industry is perfectly competitive, this will cause firms to (Click to select) in the long run. b. You observe high profits in the perfectly competitive pencil eraser industry. In the long run, you expect those profits to (Click to select) .

Answer 1

enter into the industry

fall

Step-by-step explanation:

A perfect competition is characterized by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.

In the long run, firms earn zero economic profit. If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.

Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.