In the long-run,a perfectly competitive firm will achieve
A)An average rate of return
B)Above average profits
C)Losses
D)Economic Profits

Question

​In the long-run,a perfectly competitive firm will achieve
A)​An average rate of return
B)Above average profits
C)Losses
D)​Economic Profits

Quizplus · Accepted Answer

In the long-run, a perfectly competitive firm will achieve only a normal rate of return, meaning it will earn enough profits to cover the opportunity cost of capital but not above it. The reason for this is that in a perfectly competitive market, there are no barriers to entry or exit, meaning that if a firm earns above-normal profits, new firms will enter the market, increasing supply and driving down prices until profits return to normal levels. Similarly, if a firm incurs losses, some firms will exit the market, reducing supply and driving up prices until profits return to normal levels. Thus, in the long-run, all firms in a perfectly competitive market earn only a normal rate of return.

​In the Long-Run,a Perfectly Competitive Firm Will Achieve

In the Long-Run,a Perfectly Competitive Firm Will Achieve