Question

In a purely competitive industry:

Answer 1

Answer:

C. There may be economic profits in the short run, but not in the long run.

Explanation:

Perfect Competition is a market structure with very large no of buyers & sellers, transacting homogeneous products, at same price (firms 'price taker') & inelastic demand, with free entry & exit into industry.

Economic profit is the profit earned above normal profit - covering revenues over explicit & implicit costs, necessary to continue business operations.

Free entry & exit into Perfect Competition Industry makes them earn only normal profits - no super normal (economic) profit , abnormal loss in long run

Short Run Economic Profits : Induces new firms entry and supply increases, reducing the industry & firms' price. This reduces their profit & resumes back the normal profits.

Similarly - Short Run Abnormal Losses : Induce existing firms exit,  will reduce supply, increase price & profit, resume back to normal profits.