Question

When firms are neither entering nor exiting a perfectly competitive market, a. total revenue must equal total variable cost for each firm. b. economic profits must be zero. c. price must equal average variable cost for each firm. d. Both a and c are correct.

Answer 1

Answer:

B. economic profits must be zero.

Explanation:

Perfectly competitive market: It is a competitive market, where there are multiple buyers and sellers of homogenous goods and services. The firm can freely enter and exit the market without any barrier and the action of a single buyer and seller does not have any impact on market price. In this case, marginal revenue is the price of goods and services.

In the long run, the firm which remains in the market and is neither entering or exiting is the one who makes zero economic profit. Firm stay in the market by making zero profit as the firm´s revenue compensates the owners for the time and money they spend to keep business going.