In a competitive market with identical firms, A. firms cannot earn positive economic profit in either the short run or long run. B. an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run. C. free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run. D. firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping.

Question

Reagan Pena

Business

15 October, 04:47

In a competitive market with identical firms, A. firms cannot earn positive economic profit in either the short run or long run. B. an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run. C. free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run. D. firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping.

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Answers (1)

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Wade Lopez · Answer 1

The answer is C.

Explanation:

In a competitive market, all firms produce identical goods and services. No firm or seller can influence the prevailing market price. To increase their revenue, firms must increase their outputs.

In this industry, firms make economic profit (revenue minus accounting cost minus implicit cost) in the short run but this economic profit reduces to zero in the long run because more firms that are attracted by the short run profit can enter the industry freely. Firms can also exit with little or no cost.