Zero economic profit occurs when:
A)price equals minimum average variable cost.
B)a firm has existed for long enough to make normal profit.
C)price equals long-run average cost.
D)a firm operates at the minimum of its long-run marginal cost curve.

Question

Quizplus · Accepted Answer

Zero economic profit occurs when price equals long-run average cost. At this point, the firm is earning enough revenue to cover all of its costs, including a normal rate of return for the owners or shareholders. In the long run, firms must earn zero economic profit because new firms will enter the market if existing firms are earning positive economic profit, and existing firms will exit the market if they are earning negative economic profit. Thus, in a perfectly competitive market, firms will eventually settle at the zero economic profit point where price equals long-run average cost.

Zero Economic Profit Occurs When