Suppose all firms in an industry are identical.In the long run,entry and exit guarantee that all firms will have zero
A) marginal cost.
B) average cost.
C) economic profit.
D) accounting profit.

Question

Quizplus · Accepted Answer

In perfectly competitive markets, firms operate at their minimum average total cost, which means they earn no economic profit in the long run. As firms try to enter the market due to normal profits, the supply of goods increase, and prices decrease, reducing the potential economic profit. On the other hand, when prices fall below the average cost, firms start to exit the market, reducing supply and increasing prices. This process continues until all firms earn zero economic profit. Therefore, in the long run, all firms will have zero economic profit.

Suppose All Firms in an Industry Are Identical