In long-run equilibrium, all firms in the industry earn zero economic profit. Why is this true? All firms in perfectly competitive industries earn zero economic profit in the long run because A. firms are price takers, maximizing profit by producing where total revenue equals total cost. B. if profit were positive, then firms would produce more , increasing price, and if profit were negative, then firms would produce less , decreasing price. C. firms are price takers, maximizing profit by producing where price equals marginal cost. D. if profit were positive, then firms would enter, decreasing price, and if profit were negative, then firms would exit, increasing price. E. barriers to entry and exit prevent firms from earning positive or negative economic profit.

Question

Clarence Ellison

Business

2 January, 15:33

In long-run equilibrium, all firms in the industry earn zero economic profit. Why is this true? All firms in perfectly competitive industries earn zero economic profit in the long run because A. firms are price takers, maximizing profit by producing where total revenue equals total cost. B. if profit were positive, then firms would produce more , increasing price, and if profit were negative, then firms would produce less , decreasing price. C. firms are price takers, maximizing profit by producing where price equals marginal cost. D. if profit were positive, then firms would enter, decreasing price, and if profit were negative, then firms would exit, increasing price. E. barriers to entry and exit prevent firms from earning positive or negative economic profit.

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Answers (1)

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Danielle Mcintyre · Answer 1

D. if profit were positive, then firms would enter, decreasing price, and if profit were negative, then firms would exit, increasing price.

Explanation:

Perfectly competitive firms are price takers, hence they cannot influence the price of their products.

Perfectly competitive industries have no barriers to entry or exist of firms, so if in the short run, firms are earning economic profit, then firms would enter into the industry, decreasing price, and if profit were negative, then firms would exit, increasing price. This makes perfect competitive firms to earn zero economic profit in the long run.