In long-run equilibrium, the typical perfectly competitive firm will:
A) earn maximum economic profit.
B) never change plant size in the long run.
C) change output in the short run.
D) enter or exit the industry.

Question

Quizplus · Accepted Answer

In long-run equilibrium, the typical perfectly competitive firm will enter or exit the industry. If a firm is earning economic profit, new firms will enter the industry, increasing supply and driving down price. If a firm is incurring losses, some firms will exit the industry, reducing supply and driving up price. In this way, profits are driven to zero in the long run and the industry reaches equilibrium. The other options are incorrect because in long-run equilibrium, a firm cannot earn economic profit (only normal profit), may change plant size, and produces the output level that is optimal given market conditions.

In Long-Run Equilibrium, the Typical Perfectly Competitive Firm Will