Question

1) Please give an example of a market that comes close to being considered perfectly competitive.2) What does it mean when firms in a perfectly competitive market earn $0 in economic profits?

Answer 1

Answer:

the agricultural market e.g market for oranges

2. A firm earns zero economic profit when accounting profit equals implicit cost.

it means that they only earn accounting profit

Explanation:

A perfect competition is characterized by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.

In the long run, firms earn zero economic profit.  If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.

Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.

In an agricultural market e.g. market for oranges, the goods are identical and the prices are the same.

A firm earns economic profit when accounting profit equals implicit cost. So, it only earns accounting profit