Question

A perfectly competitive firm in the long run earns: zero economic profits and zero normal profits. positive economic profits but zero normal profits. positive economic profits and positive normal profits. positive normal profits but zero economic profits.

Answer 1

The answer is D. positive normal profits but zero economic profits.

Step-by-step explanation:

For a firm to have positive normal profits is to also have zero economic profit.

Normal Profit is the the popular accounting profit where we substract total cost from total revenue.

While economic Profit is the sum of total cost and the opportunity cost substracted from total revenue.(i.e total revenue - (total cost + opportunity cost). The opportunity cost is the cost of the alternative forgone action. That is the cost of the action that wad abadoned.

The reason for this is that because of the positive economic profit witnessed in the perfectly competitive market in the short run, many firms will enter the industry because there is no barrier to entry and with this uncontrolled entry, price will continue dropping and will drop to the point where all firms make normal profit(zero economic profit) in the long run.