Figure: Pineapples 2 Refer to the figure. In the long run, what do you expect this firm's economic profit or loss to be?

Question

Figure: Pineapples 2  Refer to the figure. In the long run, what do you expect this firm's economic profit or loss to be?

Quizplus · Accepted Answer

In the long run, firms in a perfectly competitive market will earn zero economic profit, as new firms will enter the market if there are profits to be made, driving profits down, and firms will exit the market if there are losses to be incurred, driving profits up. In this case, the firm is earning a positive economic profit of $270,000 in the short run, but in the long run, new firms will enter the market, increasing supply and driving the price down until the firm earns zero economic profit. Hence, the expected economic profit in the long run is $0.

Figure: Pineapples 2 Refer to the Figure