Asked by Chloe Cluchey on May 04, 2024
Verified
Refer to Figure 8.7.2 above. In long run equilibrium, how much is the economic profit of the firm expected to be?
A) $3.64 million
B) $3 million
C) zero
D) somewhere between $3 and $3.64 million
Economic Profit
The difference between total revenue and the total costs of production, including opportunity costs not just explicit costs.
Long Run Equilibrium
A state in which all factors of production and costs are variable, and firms no longer have an incentive to enter or exit an industry, leading to a stable market condition.
Firm
A business organization that sells goods or services in order to make a profit.
- Determine the connection between producer surplus, economic profit, and the reduction of costs.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
C
Explanation :
In long run equilibrium, economic profit should be zero as new firms will enter the market, leading to an increase in supply and a decrease in price until the firms are earning only normal profits. Therefore, the only feasible answer is C, zero economic profit.
Learning Objectives
- Determine the connection between producer surplus, economic profit, and the reduction of costs.