If zero economic profit is being earned in a competitive industry,
A)firms leave the industry.
B)firms permanently shut down.
C)firms enter the industry.
D)no firms enter or leave the industry.
E)firms temporarily shut down.

Question

Quizplus · Accepted Answer

When economic profit is zero, it means that firms are earning just enough revenue to cover all of their costs, including opportunity costs. In a competitive industry, there are no barriers to entry or exit, so if firms were to leave, it would create excess supply and lower prices, increasing the profit of the remaining firms. Similarly, if firms were to shut down permanently, it would reduce supply and increase prices, eventually attracting new firms to enter the industry. Therefore, in the long run, the number of firms in the industry will remain constant, and no firms will enter or leave.

If Zero Economic Profit Is Being Earned in a Competitive