The main reason(s)firms in a competitive market cannot earn positive profits in the long run is(are)
A)assets can quickly move in and out of the industry when demand fluctuates
B)an increase in demand leads to entry of firms which absorb the extra demand
C)a decrease in demand leads to exit of firms from the market such that there is no surplus
D)all of the above

Question

​The main reason(s)firms in a competitive market cannot earn positive profits in the long run is(are)
A)​assets can quickly move in and out of the industry when demand fluctuates
B)an increase in demand leads to entry of firms which absorb the extra demand
C)a decrease in demand leads to exit of firms from the market such that there is no surplus
D)​all of the above

Quizplus · Accepted Answer

The main reason firms in a competitive market cannot earn positive profits in the long run is that assets can quickly move in and out of the industry when demand fluctuates, resulting in increased competition. An increase in demand leads to the entry of new firms, which can absorb the extra demand, and a decrease in demand leads to the exit of firms from the market, resulting in no surplus. Therefore, all of the above options are correct.

​The Main Reason(s)firms in a Competitive Market Cannot Earn Positive

The Main Reason(s)firms in a Competitive Market Cannot Earn Positive