In the long run,a firm in a perfectly competitive market will
A) make zero economic profit, so that its owners earn a normal profit.
B) make zero normal profit but its owners will make an economic profit.
C) remove all competitors and become a monopolistically competitive firm.
D) incur an economic normal loss but not earn a positive economic profit.
E) remove all competitors and become a monopoly.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, there are many buyers and sellers, and the products are homogeneous. Therefore, firms cannot charge a higher price than their competitors. In the long run, new firms can enter the market since there are no barriers to entry, leading to an increase in supply, and decreasing the equilibrium price. As a result, the firm's revenue will decrease, and it will make zero economic profit, meaning that its owners earn a normal profit, covering all implicit and explicit costs. Therefore, choice A is the best answer.

In the Long Run,a Firm in a Perfectly Competitive Market