Understanding the Changes in Output for Firms and Industries
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Please help with the following problem regarding business management.
"If economic profits exist in an industry, more firms will want to enter it. As they do, the market supply curve will shift to the right and cause a drop in the market price. The lower market price, will reduce the output and profits of the typical firm. Once the market price is driven down all profits disappear and entry ceases."
The output of the typical firm is decreasing even while industry output is increasing. How is this possible from the above statement?
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Solution Summary
This posting helps with a problem about business management. The solution discusses the relationship between industry output and the output produced by a individual firm within that industry. The refers to the market supply curve within the explanation and how marginal cost and revenue intersect.
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Problem: The output of the typical firm is decreasing even while industry output is increasing. How is this possible from the above statement?
Solution: ...
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