Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Economic profits attract new firms, increasing competition.
B
High economic profits deter firms from entering the market.
C
Economic profits have no effect on market dynamics.
D
Economic profits only affect existing firms, not new entrants.
Understanding the Answer
Let's break down why this is correct
Answer
Economic profits are the extra earnings that a business makes after covering all its costs, including the cost of using its own resources. When existing firms in a market are earning high economic profits, it signals to new firms that there is an opportunity to make money by entering that market. For example, if a coffee shop in a busy area is making significant profits, this might attract other entrepreneurs to open their own coffee shops nearby. As new firms enter, the competition increases, and the economic profits for all firms may decrease over time as prices adjust. Therefore, high economic profits can lead to more businesses entering the market, which can change the overall dynamics of that industry.
Detailed Explanation
When a business makes a lot of money, it shows others that they can also make money. Other options are incorrect because Some might think that high profits scare away new businesses; It's a common mistake to think profits don't matter.
Key Concepts
Economic Profits
Market Dynamics
Competition
Topic
Economic Profits and Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.