Asked by Sarah Elizabeth on Apr 24, 2024
Verified
The crucial aspect of competition among firms that leads to the condition of zero profits in the long run is
A) the number of firms in the industry is fixed.
B) free entry and exit of firms in the industry.
C) fixed costs equal zero.
D) all costs are at their least cost level.
Free Entry
A market condition where new participants can enter the industry freely without facing prohibitive barriers to entry.
Zero Profits
A situation in which a company's revenues exactly equal its expenses, resulting in no net income or loss.
- Discern the factors leading to the condition of zero economic profits in the long run for firms in perfect competition.
Verified Answer
PL
Pamela LewisMay 02, 2024
Final Answer :
B
Explanation :
Free entry and exit of firms in the industry ensures that profits in the long run will be driven to zero. This is because if firms are making positive profits, new firms will enter the market, increasing supply and driving prices down until profits are eliminated. Conversely, if firms are making losses, some will exit the market, reducing supply and driving prices up until losses are eliminated.
Learning Objectives
- Discern the factors leading to the condition of zero economic profits in the long run for firms in perfect competition.
Related questions
In the Long Run, a Competitive Market with 1,000 Identical ...
A Firm Operating in a Perfectly Competitive Market May Earn ...
The Long-Run Equilibrium in a Competitive Market Characterized by Firms ...
All Competitive Firms Earn Zero Economic Profit in Both the ...
In a Long-Run Equilibrium Where Firms Have Identical Costs, It ...