Question

In​ long-run equilibrium, all firms in the industry earn zero economic profit. Why is this​ true? All firms in perfectly competitive industries earn zero economic profit in the long run because A. barriers to entry and exit prevent firms from earning positive or negative economic profit. B. a positive profit would induce firms to produce more ​, increasing price and​ profit, and a negative profit would induce firms to produce less ​, decreasing price and profit. C. firms are price​ takers, maximizing profit by producing where price equals average cost . D. a positive profit would induce firms to​ enter, decreasing price and​ profit, and a negative profit would induce firms to​ exit, increasing price and profit. E. firms are price​ takers, maximizing profit by producing where price equals marginal cost.

Answer 1

Answer: D. a positive profit would induce firms to​ enter, decreasing price and​ profit, and a negative profit would induce firms to​ exit, increasing price and profit.

Step-by-step explanation:

In the long run in a competitive market, companies will enter if they find that the market is making positive economic profits. This will increase the number of supplies in the market which would then lead a to a reduction in price and by extension a reduction in profit.

If the profit that firms begin to make after these new companies come into the market, falls below 0, then firms will leave the market so as not to make losses. This would reduce supply and lead to prices rising which would pull profits up as well till they are positive again then the first instance would repeat itself.

This goes on repeatedly and therefor keeps long run economic profit at 0.