In long-run equilibrium, the typical perfectly competitive firm will:
A) earn zero economic profit.
B) change plant size in the long run.
C) change output in the short run.
D) do any of these.

Question

Quizplus · Accepted Answer

In the long-run equilibrium of a perfectly competitive market, firms earn zero economic profit because if they were earning positive profit, new firms would enter the market, increasing supply and driving prices down until profits were reduced to zero. And if a firm were incurring losses, some firms would exit the market, decreasing supply and elevating prices until profits were restored to zero. Therefore, the typical perfectly competitive firm in the long-run equilibrium earns zero economic profit. Choice B is incorrect because firms in a perfectly competitive market can adjust their plant size in the short run as well as in the long run. Choice C is also incorrect because firms in a perfectly competitive market cannot change output in the short run as they are price takers and have to produce at the level where marginal cost equals marginal revenue.

In Long-Run Equilibrium, the Typical Perfectly Competitive Firm Will