Which statement is true?

Question

Quizplus · Accepted Answer

Zero economic profits do not mean that firms make zero accounting profits; it means that firms are making a normal return on their investment, which is considered the minimum profit necessary to keep them in the industry. Free entry and exit in a competitive industry ensures that firms make zero economic profits in the long run, not negative. Firms can make positive economic profits in the short run, but in the long run, competition drives these profits to zero, not necessarily out of the industry. Therefore, none of the statements A through D are correct, making E the right choice.

Which Statement Is True