In long-run competitive equilibrium, a firm that owns factors of production will have an:
A) economic profit = $0 and accounting profit $0.
B) economic profit $0 and accounting profit = $0.
C) economic and accounting profit = $0.
D) economic and accounting profit $0.
E) economic and accounting profit can take any value.

Question

In long-run competitive equilibrium, a firm that owns factors of production will have an:
A) economic profit = $0 and accounting profit > $0.
B) economic profit > $0 and accounting profit = $0.
C) economic and accounting profit = $0.
D) economic and accounting profit > $0.
E) economic and accounting profit can take any value.

Quizplus · Accepted Answer

In long-run competitive equilibrium, firms earn zero economic profit because any positive economic profits would attract new firms into the industry, increasing supply and driving down prices and profits. However, they can still have positive accounting profits, as these do not account for the opportunity costs of all factors of production, including the capital owned by the firm itself.

In Long-Run Competitive Equilibrium, a Firm That Owns Factors of Production