A firm operating in a perfectly competitive market earns zero economic profit in the long run but remains in business because the firm's revenues cover the business owners' opportunity costs.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms earn zero economic profit in the long run because the entry of new firms drives prices down to the point where they equal the firms' average total costs, including opportunity costs. This means that while firms don't earn additional profit beyond covering their costs, they do cover all their costs, including the opportunity costs of the resources employed, allowing them to remain in business.

A Firm Operating in a Perfectly Competitive Market Earns Zero