In the long run, each firm in a competitive industry earns
A)zero accounting profits.
B)zero economic profits.
C)positive economic profits.
D)Both a and b are correct.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, firms earn zero economic profits in the long run because any profits earned in the short run will attract new firms to enter the market, increasing competition and driving down prices until economic profits are reduced to zero. Accounting profits may still exist, but economic profits (which account for both explicit and implicit costs) will be zero in the long run. Therefore, option B is the correct answer.

In the Long Run, Each Firm in a Competitive Industry