Figure 16-14
-Refer to Figure 16-14. Which of the following best describes the profit-maximizing outcome for the firm depicted here?
A)This firm is earning a short run profit, but will earn zero profit in the long run.
B)This firm is incurring a short run loss, but will earn zero profit in the long run.
C)This firm is earning zero profit in the short run, but will earn a positive profit in the long run.
D)This firm is in long run equilibrium and will continue to earn zero profit.

Question

Figure 16-14 
-Refer to Figure 16-14. Which of the following best describes the profit-maximizing outcome for the firm depicted here?
A)This firm is earning a short run profit, but will earn zero profit in the long run. 
B)This firm is incurring a short run loss, but will earn zero profit in the long run. 
C)This firm is earning zero profit in the short run, but will earn a positive profit in the long run. 
D)This firm is in long run equilibrium and will continue to earn zero profit.

Quizplus · Accepted Answer

The firm is producing at the point where marginal cost equals marginal revenue, which is the profit-maximizing output level. At this output level, the firm is earning zero economic profit. In the long run, new firms are not entering the market and existing firms are not exiting the market, indicating that the industry is in long run equilibrium. At this point, firms in the industry are earning only a normal rate of return, which means zero economic profit. Therefore, the firm depicted here is in long run equilibrium and will continue to earn zero profit in the future.

Figure 16-14 -Refer to Figure 16-14. Which of the Following Best Describes