In the long run,a perfectly competitive firm will
A) be able to make an economic profit.
B) produce but incur an economic loss.
C) make zero economic profit.
D) not produce and will incur an economic loss equal to its total fixed cost.
E) not produce but not incur an economic loss.

Question

Quizplus · Accepted Answer

In the long run, perfectly competitive firms will adjust their production levels until the price equals the minimum average total cost. At this point, the firm will be making zero economic profit since it is covering all of its costs, including the opportunity cost of capital. If the firm were making a positive economic profit, this would attract new firms to enter the market, increasing the supply and driving down price until economic profit returns to zero. If the firm were making an economic loss, some firms would exit the market, reducing supply and driving up price until economic profit returns to zero. Therefore, in the long run, perfectly competitive firms will make zero economic profit.

In the Long Run,a Perfectly Competitive Firm Will