When a firm is receiving positive economic rents:Question 29Select one:a.All firms bid up the market price of inputs resulting in upward shifts in the MC and ATC curvesb.Other firms enter the market producing the product and pushing down the market pricec.All of thesed.None of thesee.A new long term equilibrium occurs where P = MC at the minimum of the ATC curve
Question
When a firm is receiving positive economic rents:Question 29Select one:a.All firms bid up the market price of inputs resulting in upward shifts in the MC and ATC curvesb.Other firms enter the market producing the product and pushing down the market pricec.All of thesed.None of thesee.A new long term equilibrium occurs where P = MC at the minimum of the ATC curve
Solution
When a firm is receiving positive economic rents, it means that the firm is making more than the normal profit. This situation is usually a signal to other firms that the industry is profitable, leading to the entry of new firms into the market.
Here are the steps to answer the question:
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Positive economic rents mean the firm is making more than the normal profit. This is an indication of high profitability in the industry.
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High profitability attracts other firms to enter the market. This is because other firms also want to take advantage of the high profitability.
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As more firms enter the market, the supply of the product in the market increases.
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The increase in supply leads to a decrease in the market price of the product. This is because the supply and demand principle states that an increase in supply, with demand remaining constant, leads to a decrease in price.
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As the market price decreases, the economic rents (profits) of the firms decrease. This continues until the firms are just making normal profits.
So, the correct answer is: b. Other firms enter the market producing the product and pushing down the market price.
Similar Questions
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