Question

Why do firms enter an industry when they know that in the long run economic profit will be​ zero? Firms would enter an industry if profit will eventually be zero because zero economic profit A. becomes positive once the value of the next best use of resources used in production is included. B. is a normal rate of return that includes the opportunity cost of resources used in production. C. corresponds to positive producer surplus in the long run. D. includes the opportunity cost of resources used in production and corresponds to negative accounting profit. E. indicates other industries are earning negative economic profit.

Answer 1

Answer:

A. becomes positive once the value of the next best use of resources used in production is included

Explanation:

Economic profit is accounting profit less implicit cost or opportunity cost.

Opportunity cost is the cost of the next best option forgone when one alternative is chosen over other alternatives.

Accounting profit is total revenue less total cost.

If in the short run firms are earning economic profit, in the long run firms would enter into the industry and this would drive economic profit to zero. While economic profit is zero, accounting profit would be postive. So the firm would still be earning accounting profit.

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