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Fact 13.3.3
Suppose that Roots' marginal cost of a jacket is a constant $125.00 and the total fixed cost at one of its stores is $1,500 a day.This store sells 20 jackets a day,which is its profit-maximizing number of jackets.Then the stores nearby start to advertise their jackets.The Roots store now spends $2,000 a day advertising its jackets,and its profit-maximizing number of jackets sold jumps to 70 a day.
-Refer to Fact 13.3.3.In the long run,Roots' economic profit is

Question

Quizplus · Accepted Answer

In the long run, competitive markets tend to lead to a situation where firms earn zero economic profit. This is because if firms are earning positive economic profits, new firms will enter the market, increasing supply and driving down prices until profits are eliminated. Conversely, if firms are suffering losses, some will exit the market, reducing supply and raising prices until losses are eliminated. The scenario does not provide specific information to suggest that Roots would be an exception to this general rule, so we assume it will also reach a point of zero economic profit in the long run.

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