Option 4: (C), (B), (D), (A) -> This represents the correct sequence of events in perfect competition when supernormal profits exist. The logical flow is: (C) Initially, firms earn supernormal profits at the prevailing market price → (B) This attracts new firms to enter the market due to free entry → (D) As new firms enter, market supply increases (supply curve shifts rightward) while demand remains unchanged → (A) The increased supply causes market price to fall until firms earn only normal profits, eliminating the incentive for further entry. This sequence demonstrates the self-correcting mechanism of perfect competition where supernormal profits are temporary and the market moves toward long-run equilibrium with normal profits. -> correct
Under perfect competition if firms earn supernormal profits. Arrange following statements to arrive at the implication of free entry and exit of…
CUET UG 2025 — Economics Micro
Under perfect competition if firms earn supernormal profits. Arrange following statements to arrive at the implication of free entry and exit of firms
(A) Market price fall in such a manner that firms will be earning normal profits only and thus no more firms will have incentive to enter the market.
(B) Some new firms will enter the market
(C) At the prevailing market price, each firm is earning supernormal profit.
(D) Demand remains unchanged but the market supply curve shifts rightward
Held on 14 May 2025 · Verified 13 Jul 2026.
Options
- A
(A), (B), (C), (D)
- B
(A), (C), (B), (D)
- C
(B), (A), (D), (C)
- D
(C), (B), (D), (A)
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