If each firm in a perfectly competitive industry is earning zero economic profit,firms will have an incentive to leave the industry.

Question

Quizplus · Accepted Answer

If each firm in a perfectly competitive industry is earning zero economic profit, it indicates that the firms are already covering their costs of production, including opportunity costs. Therefore, there is no reason for firms to leave the industry as they are earning a normal rate of return on their investment. If some firms do leave the industry, the remaining firms would have more room to increase their market share and possibly earn positive economic profits.

If Each Firm in a Perfectly Competitive Industry Is Earning