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A television making industry is making super normal profits. Many firms have entered the industry as free entry is permitted n this form of market. A new firm sees potential in this industry and decices to invest in it. Would this be a rational decision ? What would you guide to the firm ?

Answer» <html><body><p></p><a href="https://interviewquestions.tuteehub.com/tag/solution-25781" style="font-weight:bold;" target="_blank" title="Click to know more about SOLUTION">SOLUTION</a> :When the industry starts making super <a href="https://interviewquestions.tuteehub.com/tag/normal-1123860" style="font-weight:bold;" target="_blank" title="Click to know more about NORMAL">NORMAL</a> profits, it attracts more firms to join the incustry as price charged is greater than the average cost incurred. The new firm should closely nonitor (follow) the relation between price and average cost at the time when it is making its decision to enter the industry . It is because as many firms have already entered the industry, price <a href="https://interviewquestions.tuteehub.com/tag/must-2185568" style="font-weight:bold;" target="_blank" title="Click to know more about MUST">MUST</a> have fallen due to competition among the sellers. If the difference between price and average cost is not very significant, the firm <a href="https://interviewquestions.tuteehub.com/tag/may-557248" style="font-weight:bold;" target="_blank" title="Click to know more about MAY">MAY</a> end up earning only the normal profits i.e., when price becomes <a href="https://interviewquestions.tuteehub.com/tag/equal-446400" style="font-weight:bold;" target="_blank" title="Click to know more about EQUAL">EQUAL</a> to the average cost.</body></html>


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