For exit from a particular perfectly competitive industry to occur,which of the following must be TRUE?
A) Accounting profit

Question

For exit from a particular perfectly competitive industry to occur,which of the following must be TRUE?
A) Accounting profit < Economic profit < 0.
B) Economic profit < Accounting profit < 0.
C) 0 < Economic profit < Accounting profit.
D) Economic profit < 0 < Accounting profit.
E) Economic profit < 0.

Quizplus · Accepted Answer

In perfectly competitive industries, firms will continue to stay in business as long as they can cover their average total costs in the short run. Therefore, for a firm to exit the industry, its revenue must not be enough to cover its variable costs (i.e., it must be incurring losses) in the short run. This means that economic profit must be less than or equal to zero, which is only true in option E.

For Exit from a Particular Perfectly Competitive Industry to Occur,which