When there is free entry and exit of sellers in an industry, in the long run, sellers will have:
A)positive economic profits.
B)economic losses.
C)zero economic profits.
D)enhanced market power.

Question

Quizplus · Accepted Answer

In the long run, free entry and exit of sellers ensure that profits in the industry are driven down to zero economic profits. This is because if there were positive economic profits in the short run, new firms would be attracted to join the industry, increasing the supply of the product and driving down prices, and hence reducing profits. The opposite happens if there were economic losses in the short run. Therefore, in the long run, sellers will have zero economic profits.

When There Is Free Entry and Exit of Sellers in an Industry