In long-run equilibrium, the perfectly competitive firm earns __________ economic profits.

Question

Quizplus · Accepted Answer

In the long-run equilibrium of a perfectly competitive market, firms earn zero economic profits because of the process of entry and exit. If firms are earning positive economic profits, then new firms will enter the market, increasing the supply and lowering prices until profits reach zero. If firms are earning negative economic profits, then existing firms will exit the market, reducing supply and raising prices until profits reach zero. Thus, in the long-run equilibrium, firms earn zero economic profits.

In Long-Run Equilibrium, the Perfectly Competitive Firm Earns __________ Economic