Long-run competitive equilibrium in an industry implies that
A) all firms in the industry are earning positive economic profit.
B) all firms in the industry are producing output at the point where marginal profit equals marginal cost.
C) there is no positive economic profit to attract new entrants.
D) the accounting profit of all firms in a competitive industry is zero.
E) there is negative economic profit,so firms exit.

Question

Quizplus · Accepted Answer

Long-run competitive equilibrium in an industry implies that there is no positive economic profit to attract new entrants. This means that all firms are earning only a normal rate of return on their investment and there is no incentive for new firms to enter the market. If firms were earning positive economic profit, it would attract new entrants, leading to an increase in supply and a decrease in price, causing economic profit to decrease. Similarly, if firms were earning negative economic profit, some firms would leave the industry, leading to a decrease in supply and an increase in price, causing economic profit to increase. Thus, in the long-run, firms in a perfectly competitive market earn only a normal rate of return.

Long-Run Competitive Equilibrium in an Industry Implies That