If perfectly competitive firms are making an economic profit, the economic profit

Question

Quizplus · Accepted Answer

Economic profit for perfectly competitive firms indicates that their price is higher than the average total cost. This attracts entry by more firms, increasing the supply and lowering the price until economic profit is zero in the long run. Thus, option C is the correct answer. Option A states that firms exit, but in reality, firms enter the market until profits are driven to zero. Option B is incorrect because normal profit is included in the calculation of economic profit. Option D is incorrect as economic profit indicates that demand is greater than supply, leading to entry by more firms. Finally, option E is incorrect because economic profit can only be earned in the short run as more firms enter and push profits towards zero in the long run.

If Perfectly Competitive Firms Are Making an Economic Profit, the Economic