In perfectly competitive markets, an implication of entry and exit in response to economic profit and loss is that:
A)firms must earn positive economic profits in the long run.
B)firms will produce the quantity that minimizes average variable costs in the short run.
C)firms will produce the quantity that minimizes average total costs in the long run.
D)market demand is completely elastic.

Question

Quizplus · Accepted Answer

In perfectly competitive markets, firms will enter if there are economic profits to be made and exit if there are losses to be incurred. As more firms enter the market, the supply of the good or service increases, causing prices to fall. In the long run, firms will adjust their production to the point where they are earning only normal profits, which is when average total cost is at its minimum. Therefore, firms will produce the quantity that minimizes average total costs in the long run.

In Perfectly Competitive Markets, an Implication of Entry and Exit