Question

The pizza industry is perfectly competitive and has​ 1,000 firms.All firms are identical.In​ long-run equilibrium, each firm is​ _______.
A) making zero economic profitB) incurring an economic lossC) making economic profitD) just covering total variable cost

Answer 1

Answer:

A) making zero economic profit

Explanation:

A perfectly competitive industry is where there are many firms producing homogenous goods and services. There are no barriers to entry or exit of firms. Prices are set by market forces. Buyers and sellers are price takers.

In the short run, if firms in a perfectly competitive market are earning economic profits, in the long run, new firms enter into the industry and economic profit falls to zero.

In the short run, if firms in a perfectly competitive market are earning economic loss, in the long run, firms leave the industry and economic profit goes up to zero.

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