The reason that firms in perfect competition earn zero economic profit, in the long run, is that b. there are no barriers to entry or exit.
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What is economic profit?</h3>
Economic profit is the difference between a firm's total revenue and total cost, where total cost includes both explicit and opportunity costs. Economic profit is also known as excess profit or supernormal profit. A firm can earn an economic profit in the short run if it has market power and can charge a price above the marginal cost of production. In the long run, a firm can earn an economic profit if it has a competitive advantage over its rivals. A competitive advantage can arise from a variety of sources, including economies of scale, product differentiation, and the ability to access scarce resources.
In perfect competition, firms can freely enter and exit the market, which prevents any one firm from earning sustained economic profits. If one firm earns profits above the normal level, other firms will enter the market, driving down prices and profits. In the long run, firms in perfect competition earn only enough revenue to cover their costs, and they earn zero economic profit.
It can be concluded that the reason that firms in perfect competition earn zero economic profit, in the long run, is that b. there are no barriers to entry or exit.
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