Question

In a perfectly competitive market with positive economic profits: A. Firms will enter until accounting profits are zero. B. Firms will enter until economic profits are zero. C. Firms will exit until economic profits are zero.

Answer 1

Answer:

The answer is B.

Explanation:

Economic profit is the difference between total revenue and both explicit cost and implicit cost. i.e Total revenue - explicit cost - implicit cost.

Explicit cost is also known as accounting cost. They are the cost that are directly related to the production of goods and services while implicit cost is the opportunity cost of chosen to produce the goods and services.

In perfectly competitive market, firms continue to enter the when economic profit is still positive (with this, they are generating normal profit) but cease to enter when the profit drops to zero(with this, they are making loss)

So therefore, firms will enter until economic profits are zero.