Perfectly competitive firms can earn an economic profit in the short run because

Question

Quizplus · Accepted Answer

In the short run, the entry of new firms takes time, allowing existing firms to earn an economic profit until competitors enter the market and drive down prices. Once this occurs, firms may only earn a normal profit in the long run. Therefore, choice A is the best answer. Choices B and C are incorrect because neither condition guarantees an economic profit. Choice D is incorrect because if price only equals average variable cost, the firm will earn a normal profit but not an economic profit. Choice E is also incorrect because if price only equals average total cost, the firm will break even, but not earn an economic profit.

Perfectly Competitive Firms Can Earn an Economic Profit in the Short