The representative firm in a purely competitive industry
A)will always earn a profit in the short run.
B)may earn either an economic profit or a loss in the long run.
C)will always earn an economic profit in the long run.
D)will earn zero economic profit in the long run.

Question

Quizplus · Accepted Answer

In a purely competitive industry, firms can enter and exit the market freely. In the long run, this leads to zero economic profit, as any economic profit would attract new firms to the market, increasing supply and driving down prices until only normal profits are earned.

The Representative Firm in a Purely Competitive Industry