Question

What is zero profit in the long run competitive equilibrium?

Answer 1

In a long-run competitive equilibrium, zero profit occurs when a firm's total revenue is equal to its total cost. This means that the firm is earning enough revenue to cover all of its costs, including both explicit costs (such as wages, rent, and materials) and implicit costs (such as the opportunity cost of the owner's time and capital).

Step-by-step explanation:

Answer 2

Zero profit in the long run competitive equilibrium occurs when firms in a perfectly competitive market earn exactly enough revenue to cover all costs, resulting in zero economic profits. Entry and exit of firms lead to adjustments in the market, culminating in a long-run equilibrium where no firm has an incentive to change its production levels or market presence.

Step-by-step explanation:

Zero profit in the long run competitive equilibrium refers to the situation where firms in a perfectly competitive market earn exactly enough revenue to cover all their costs, including opportunity costs. In the long run, firms adjust their production levels in response to profits and losses.

When firms are earning positive economic profits, it signals new firms to enter the market, increasing supply and driving down prices. Conversely, when firms are incurring losses, some will exit the market, reducing supply and pushing up prices. These entry and exit of firms continue until only zero economic profits are possible, meaning total revenues equal total costs, and no firm has an incentive to either enter or leave the market. This is the point of long-run equilibrium where P = MR = MC (Price equals Marginal Revenue equals Marginal Cost) and also P = AC (Price equals Average Cost).