what happens to an industry if a firm is making large economic profits?
It could drive other companies to make more profits -- or it could be squashing the other companies.
is there more details about it?
When a firm in an industry is making large economic profits, it can have several effects on the industry as a whole:
1. Entry of new firms: Large economic profits indicate that the firm's revenue is significantly higher than its costs. This attracts new firms to enter the industry, hoping to also earn profits. Increased competition may lead to more options for consumers and potentially drive down prices.
2. Increased supply: As new firms enter the industry and existing firms expand their production, the overall supply of goods or services in the industry increases. This can lead to a greater availability of products and potentially lower prices.
3. Industry growth: The presence of a firm earning large profits signals that the industry is profitable and potentially high-growth. This can attract investment and encourage further industry expansion, leading to job creation, technological advancements, and increased output.
4. Innovation and efficiency: Strong economic profits can incentivize firms to invest in research and development, innovation, and improved production techniques. Firms may strive to differentiate themselves from their competitors or enhance their efficiency to maintain their profits, which can benefit consumers through improved products or lower costs.
5. Potential for change in market structure: If sustained economic profits persist over time, it may lead to changes in the market structure of the industry. For example, it could trigger mergers and acquisitions as larger firms attempt to consolidate their position and eliminate competition.
It's worth noting that the factors mentioned above depend on various market conditions, including the industry's barriers to entry, the presence of economies of scale, the level of demand, and regulatory factors. Additionally, economic profits can attract the attention of policymakers who may introduce regulations or antitrust measures to promote competition and prevent market concentration.