How to innovate and possibly earn a normal profit

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The basic model of pure competition reviewed in this chapter finds that in the long run all firms in a purely competitive industry will earn normal profits. If all firms only earn a normal profit in the long run, firms will develop new products or lower-cost production methods because they can innovate and possibly earn an economic profit in the short run. improve their management and earn an economic profit in the long run. eliminate competition. innovate and possibly earn a normal profit in the short run. 14) Consider the following statement: "Ninety percent of new products fail within two years-so you shouldn't be so eager to innovate." This statement is false because a firm could capture enough expected economic profit in the short run to cover the initial investment. true so the firm should not innovate in the first two years. true so the firm should only innovate if other competitors are also innovating. false because a firm could capture enough expected economic profit in the long run to cover the initial investment.

Reference no: EM13213230

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