Assume that the typical firm in a perfectly competitive market is making economic profit. Which of the following sequence of events best describes the change in prices and output that will occur over the long run as a result of free entry?Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer.aThe short-run market supply curve shifts to the right, causing prices to fall; aggregate (total) industry output increases.bThe market demand curve shifts to the right, causing prices to rise; aggregate market output increases.cThe market demand curve shifts to the left, causing prices to fall; aggregate market output decreases.dThe short-run market supply curve shifts to the left, causing prices to rise; aggregate market output decreases.

The correct answer is a) The short-run market supply curve shifts to the right, causing prices to fall; aggregate (total) industry output increases.

Here's the step-by-step explanation:

1. In a perfectly competitive market, if a firm is making an economic profit, it means that the firm's revenue is greater than its opportunity cost. This signals to other potential firms that there is profit to be made in this market.

2. As a result, new firms will enter the market to take advantage of the profit opportunity. This is known as free entry.

3. The entry of new firms increases the number of suppliers in the market, which shifts the market supply curve to the right.

4. An increase in supply, assuming demand remains constant, leads to a decrease in the price of the good or service.

5. As the price falls, the economic profit of the original firm will decrease.

6. The increase in the number of firms also increases the total (aggregate) output in the industry.

7. This process continues until there are no more economic profits to be made, at which point the market reaches long-run equilibrium. At this point, the price is equal to the minimum point of the average cost curve, and firms are making zero economic profit.

The correct answer is a) The short-run market supply curve shifts to the right, causing prices to fall; aggregate (total) industry output increases.

Here's the step-by-step explanation:

1. In a perfectly competitive market, if a firm is making an economic profit, it means that the firm's revenue is greater than its costs. This signals to other potential firms that they can also make a profit in this market.

2. As a result, new firms will enter the market, increasing the number of suppliers. This is represented by a shift to the right of the short-run market supply curve.

3. As the supply increases, the price of the product will fall due to the law of supply and demand. This is because there is now a greater quantity of the product available for the same demand.

4. The increase in the number of firms also means that the aggregate (total) industry output increases. This is because there are now more firms producing the product.

5. Over the long run, the entry of new firms and the subsequent fall in price will continue until firms are no longer making an economic profit, but are instead breaking even. At this point, there is no incentive for new firms to enter the market, and the market reaches a long-run equilibrium.

The correct answer is a. The short-run market supply curve shifts to the right, causing prices to fall; aggregate (total) industry output increases.

Here's why:

1. In a perfectly competitive market, firms are price takers and have no control over the market price. They can only adjust their output levels.

2. If a firm is making an economic profit, it means that the firm's revenue is greater than its opportunity cost. This signals to other potential firms that the industry is profitable.

3. As a result, new firms will enter the market to take advantage of the economic profit. This is known as free entry.

4. The entry of new firms increases the market supply, shifting the short-run market supply curve to the right.

5. As supply increases, the market price falls due to the law of supply and demand.

6. The increase in the number of firms also increases the aggregate (total) industry output.

7. Over the long run, the economic profit will be eliminated due to the increased competition and lower prices. Firms will then earn a normal profit, where total revenue equals total cost, including opportunity cost.

The correct answer is a. The short-run market supply curve shifts to the right, causing prices to fall; aggregate (total) industry output increases.

Here's the step-by-step explanation:

1. In a perfectly competitive market, if a firm is making an economic profit, it means that the firm's revenue is greater than its costs. This signals to other potential firms that they can also make a profit in this market.

2. As a result, new firms will enter the market, increasing the number of suppliers. This is represented by a shift to the right of the short-run market supply curve.

3. The increase in supply will lead to a decrease in the price of the product in the market, as there is now more of the product available for the same demand.

4. The decrease in price will continue until firms are no longer making an economic profit, but are instead breaking even. This is because, in the long run, firms will enter or exit the market until there is zero economic profit.

5. Despite the decrease in price, the total output of the industry (aggregate output) increases because there are now more firms producing the product.