Asked by Charles Hearne on Jun 10, 2024
Verified
A purely competitive firm:
A) must earn a normal profit in the short run.
B) cannot earn economic profit in the long run.
C) may realize either economic profit or losses in the long run.
D) cannot earn economic profit in the short run.
Purely Competitive Firm
A business operating in a market where there are many buyers and sellers, each with negligible impact on the price of goods and services.
Economic Profit
The variance between collective earnings and complete expenditures, encompassing both overt and covert costs.
Normal Profit
The minimum amount of profit needed for a company to remain competitive in the market; it equals the total opportunity costs of a firm.
- Clarify the meanings of economic, normal, and accounting profits and their importance in business strategy.
Verified Answer
SR
saurabh rathaurJun 16, 2024
Final Answer :
B
Explanation :
In a purely competitive market, firms can earn economic profits in the short run due to varying demand and costs. However, in the long run, the entry of new firms into the market eliminates these economic profits, leading to only normal profits being earned. This is because the ease of entry and exit in such markets ensures that any economic profit attracts new entrants, increasing supply and driving prices down until only normal profits are possible.
Learning Objectives
- Clarify the meanings of economic, normal, and accounting profits and their importance in business strategy.