Asked by Efrem Wondale on May 31, 2024
Verified
In long-run competitive equilibrium, a firm that owns factors of production will have an:
A) economic profit = $0 and accounting profit > $0.
B) economic profit > $0 and accounting profit = $0.
C) economic and accounting profit = $0.
D) economic and accounting profit > $0.
E) economic and accounting profit can take any value.
Competitive Equilibrium
A state in a market where the supply of goods matches demand, with no incentive for price change, resulting from the competition among many buyers and sellers.
Factors Of Production
Inputs into the production process (e.g., labor, capital, and materials).
- Examine the connection between accounting and economic profits within the framework of long-term competitive equilibrium.
Verified Answer
DS
Diana SinghJun 05, 2024
Final Answer :
A
Explanation :
In long-run competitive equilibrium, firms earn zero economic profit because any positive economic profits would attract new firms into the industry, increasing supply and driving down prices and profits. However, they can still have positive accounting profits, as these do not account for the opportunity costs of all factors of production, including the capital owned by the firm itself.
Learning Objectives
- Examine the connection between accounting and economic profits within the framework of long-term competitive equilibrium.