If there are no barriers to entry into an industry
A) short-run economic profits must be zero.
B) long-run economic profits must be zero.
C) both short-run and long-run economic profits must be zero.
D) short-run and long-run profits must still be positive.

Question

Quizplus · Accepted Answer

When there are no barriers to entry into an industry, firms can easily enter or exit the market. This means that if there are economic profits in the short run, new firms will enter the market, increasing the supply of the good or service, and decreasing its price. As the price falls, firms' economic profits will decrease until they reach zero in the long run. Therefore, in the long run, economic profits must be zero.

If There Are No Barriers to Entry into an Industry