Final answer:
A firm is operating in a market that is in long-run competitive equilibrium if its economic profits are zero, indicating no new firms will enter the market and existing firms will not leave since all firms are earning a normal return on their resources. So, the correct option is a. economic profits are zero.
Step-by-step explanation:
When analyzing market structures, particularly monopolistic competition and perfect competition, a key concept is the long-run equilibrium where firms in the market make zero economic profits. This outcome results from the dynamic process of entry and exit of firms in the market. Firms earning positive economic profits attract new competitors until the growing number of firms and subsequent competition drive down profits.
Conversely, if firms are incurring losses, some will exit the market, reducing supply and thereby alleviating those losses until the market stabilizes with firms breaking even. In this equilibrium, the price equals the average cost, and economic profits are zero. Importantly, this scenario should not be confused with zero accounting profits; a firm with zero economic profit still earns enough to cover accounting costs, including a normal return to capital.