In the long-run equilibrium, all firms in a perfectly competitive market earn zero economic profit. Explain...

In the long-run equilibrium, all firms in a perfectly competitive market earn zero economic profit. Explain why this is true using intuition and graphs.

Expert Solution

In the long-run equilibrium, all firms in a perfectly competitive market earn zero economic profit.

This is because of free entry and exit of firms in the long run

Left side case - when firms in a industry is earning super normal prodits in the short run

Then this will attract new firms to enter in the industry in the long run so there will be increase in aggregate supply which will lower down the prices

When prices lower than extra profits the firms are earning is reduced till it becomes to the level of normal profits where AR = AC

Right side case - when there is abnormal losses in the short run

This will make firms in the industry to leave in the long run so supply in the industry will reduce leading to rise in prices in the industry

Thus firms will start earning some profits

This will continue till normal profits are earned by firms

Rahul Sunny answered 2 years ago

Suppose that a perfectly competitive market is in long-run equilibrium such that all firms earn zero...

Suppose that a perfectly competitive market is in long-run equilibrium such that all firms earn zero economic profits. Suppose also that each individual firm reports a yearly profit of $100,000 to the government and its shareholders. Is this situation possible or impossible? Explain your answer in your own words. Hint: Consider total opportunity costs (b) Consider a perfectly competitive market. As the level of output increases, is the supply curve in the long run in a perfectly competitive market upward-sloping,...

why do competitive firms earn zero economic profit in the long run

Suppose all firms in a perfectly competitive market are in long-run equilibrium. Illustrate what a perfectly...

Suppose all firms in a perfectly competitive market are in long-run equilibrium. Illustrate what a perfectly competitive firm will do if market demand rises.

Why is there no economic profit for perfectly competitive firms in the long run? Why is...

Why is there no economic profit for perfectly competitive firms in the long run? Why is there no economic loss? Answer this question by using an example of a market or industry where perfectly competitive or close to perfectly competitive firms operate (or run their businesses) in close to 'no economic profit or no economic loss' situation.

Using the definition and characteristics of perfectly competitive industries, explain why—in the long run—firms earn zero...

Using the definition and characteristics of perfectly competitive industries, explain why—in the long run—firms earn zero economic profits. Does this mean that competitive firms earn zero accounting profits? Your response should be at least 75–150 words (1–2 paragraphs) in length.

Explain why the firms in a perfectly competitive industry will earn zero economic profits in the...

Explain why the firms in a perfectly competitive industry will earn zero economic profits in the long run. I need the answer in 1 hour, please?

Suppose all firms in a perfectly competitive and zero-fixed-cost industry previously in its long-run equilibrium are...

Suppose all firms in a perfectly competitive and zero-fixed-cost industry previously in its long-run equilibrium are now receiving an upfront subsidy from the US government. Please use a graphic tool to answer the following questions: a) How do the MC and AC curve change due to this government intervention? b) At the current price, are the existing firms earn positive, negative, or zero profit? Identify the size of the profit/loss in the graph. c) Will we observe entry or exit...

1. In monopolistic competition, the long-run equilibrium results in zero economic profit of the firms in...

1. In monopolistic competition, the long-run equilibrium results in zero economic profit of the firms in these industries. The key factor in this is a. differentiated products. b. freedom of entry into and exit from the industry. c. price discrimination. d. brand names. 2. In the long run, a monopolistically competitive industry is characterized by all of the following, except a. an efficient use of resources. b. production that would exhibit lower costs per...

1.In long-run competitive market equilibrium, price equals _ and economic profit is .

1.In long-run competitive market equilibrium, price equals _______ and economic profit is ______.A. Minimum average variable cost; greater than zeroB. Minimum average total cost; zeroC. Maximum marginal cost; zeroD.Minimum fixed cost; greater than zero2. Which of the following market structures has the highest barriers to entry? A. Perfect competition B. Monopoly C. Monopolistic competition D. Oligopoly3. Which of the following is consistent with a competitive market? A. A small number of firms B. Exit of small firms when profits are high for large firms C. Zero economic...

13. Firms in a perfectly competitive firm make 0 economic profit in the long run. True...

13. Firms in a perfectly competitive firm make 0 economic profit in the long run. True or False 14. A firm in a perfectly competitive market, finds that it's MR = MC occurs at Q = 100, at which point the market Price is $8. The firm's ATC = AFC+AVC = $6; Is the firm making a profit or loss at this point of production? a.Loss of $200 b.profit of $600 C.loss of $600 D. profit of $200 15. A...

Question