In a perfectly competitive, increasing-cost industry in the long run, economic profit for the industry __________ and economic rent __________.
A)can be positive; can be positive
B)can be positive; equals zero
C)equals zero; can be positive
D)equals zero; equals zero

Question

Quizplus · Accepted Answer

In a perfectly competitive market in the long run, economic profit tends towards zero due to easy entry and exit of firms. In an increasing-cost industry, as more firms enter the market, the cost of production for each firm increases due to the limited availability of resources. Therefore, as the industry expands, economic rent (extra profit earned above normal profit) can be positive for some firms that have access to better resources, but economic profit for the industry as a whole tends towards zero. In the long run, in a perfectly competitive increasing-cost industry, the entry of new firms due to positive economic profit will lead to an increase in industry supply and increase in the price of the input. This rise in input prices will increase the costs of production for all firms, leading to zero economic profit and no economic rent in the long run. Therefore, economic profit will be zero in the long run, and economic rent can be positive or zero.

In a Perfectly Competitive, Increasing-Cost Industry in the Long Run