Question

If firms can easily enter and exit a​ market, then A. firms will produce at minimum average cost in the short run. B. firms will produce where price is less than marginal cost. C. firms will earn zero economic profit in the long run. D. firms will produce where price is greater than marginal revenue. E. firms will produce at minimum average fixed cost in the long run.

Answer 1

The correct answer is option C.

Step-by-step explanation:

`If firms can easily enter and exit the market, then firms operating in the market will earn zero economic profit in the long run. This is because the short run is too short for firms to enter and exit so potential firms will enter and exit in the long run.

If the existing firms will be having negative profits, the firms having loss will exit the market. This will reduce market supply. As a result, the price level will increase. This will go on until all firms will have zero economic profits.

Similarly, if the existing firms are having positive economic profits in the long run, the other firms will enter the market. This will increase the market supply such that the price level decreases. This will go on till all the firms will be having zero economic profits.