In a perfectly competitive industry,economic profit:
A)Can persist in the long run because of barriers to entry.
B)Can persist in the long run because of homogeneous products.
C)Will approach zero in the long run as prices are driven to zero.
D)Will approach zero in the long run as prices are driven to the level of average production costs.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, firms cannot earn economic profit in the long run because there are no barriers to entry or product differentiation, so competitors can easily enter and drive down prices to the level of average production costs. Therefore, economic profit will approach zero in the long run as prices are driven towards average production costs.

In a Perfectly Competitive Industry,economic Profit