Which of the following is true concerning purely competitive industries?
A) There will be economic losses in the long run because of cut-throat competition.
B) Economic profits will persist in the long run if consumer demand is strong and stable.
C) In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits.
D) There are economic profits in the long run but not in the short run.

Question

Quizplus · Accepted Answer

In purely competitive industries, firms must accept the market price for their product, and cannot influence it through their individual actions. In the short run, firms may earn economic profits if the market price is above their average total cost, or incur economic losses if the market price is below their average total cost. However, in the long run, entry and exit of firms will cause the market price to adjust to the point where each firm earns only normal profits (equal to its opportunity cost). Therefore, in the long run, firms in purely competitive industries will earn normal profits, but not economic profits or economic losses.

Which of the Following Is True Concerning Purely Competitive Industries