When all perfectly competitive firms in a market or all monopolistically competitive firms in a market make zero economic profit,
A) no firms will enter the market
B) all firms will exit the market
C) a monopolist will take over the market
D) the market demand shifts to the left
E) the price of the good produced will increase in the long run

Question

Quizplus · Accepted Answer

In a situation where all firms in a perfectly competitive or monopolistically competitive market are making zero economic profit, it indicates that they are covering all their costs, including opportunity costs, but not making any excess profit. This scenario does not incentivize new firms to enter the market since there is no extra profit to be earned beyond covering costs. Existing firms have no reason to exit as they are covering their costs. This equilibrium discourages both entry and exit.

When All Perfectly Competitive Firms in a Market or All