Question

In the long run, the entry of new firms in an industry:

a. Harms consumers by forcing prices up above the level of total cost

b. Harms consumers by forcing prices up above the level of average cost

c. Benefits consumers by forcing prices down to the level of total cost

d. Benefits consumers by forcing prices down to the level of average cost.

Answer 1

d. Benefits consumers by forcing prices down to the level of average cost.

Step-by-step explanation:

In the long run, as firms enter into the industry, price would fall. This is due to the law of supply which says the higher the price, the higher the quantity supplied and the lower the price, the lower the quantity supplied.

The entry of firms into the industry in the long run drives economic profit to zero and ensures that price is equal to marginal cost or average cost.

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