Suppose a Perfectly Competitive fiRm Is Making Supernormal Profits

question 15

Multiple Choice

Suppose a perfectly competitive firm is making supernormal profits. What is likely to happen in the long run?

• A) The firm will have to shut down production.
• B) The firm can increase its supernormal profits if it increases its output.
• C) The firm will continue to make supernormal profits.
• D) New entrants will compete away the firm's supernormal profits.

---

Definitions:

Equilibrium Price

The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.

Federal Income Tax

Federal income tax is the tax levied by the national government on individuals and organizations' annual earnings.

Taxpayers

Individuals or entities obligated to pay taxes to governmental authorities.

Income Tax

A tax imposed by the government directly on individuals' or organizations' income.