Economic profits:
A) will always exist for monopoly because of significant barriers to entry.
B) will not exist in the long run in perfect competition because of easy entry into the industry.
C) are determined by the vertical distance between price and average total cost.
D) are correctly describe in A and B.

Question

Quizplus · Accepted Answer

In the long run, in perfect competition, economic profits will be competed away due to the ease of entry into the industry. Therefore, only normal profits will exist in the long run. Option A is incorrect because although significant barriers to entry might lead to economic profits, it is not always the case. Option C is incorrect because the vertical distance between price and average total cost only calculates the markup price, but not economic profits.

Economic Profits