Economics: Principles, Problems, and Policies, 19th Edition

Published by McGraw-Hill Education
ISBN 10: 0073511447
ISBN 13: 978-0-07351-144-3

Chapter 9 - Pure Competition in the Long Run - Questions - Page 193: 2

Answer

If a firm in a purely competitive market is earning super normal profit, other firms' opportunity cost for being in another industry is higher, as they might have the ability to earn more if they enter this new industry. Thus, the opportunity cost for entering this new industry is lower, and they would be incentivized to enter.

Work Step by Step

If the firm in the purely competitive industry is earning subnormal profits, the opportunity cost for staying in the industry increases, as their money could reap better profits in other industries, and thus they would be incentivized to leave the industry so that they would be able to earn more profits. (assuming that the objective of these firms are to profit maximize)
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