Answer to Question #216796 in Economics of Enterprise for Ehliey

Question #216796

Zero economic profit earned by firms in a perfectly competitive market indicates that:

A. firms will exist in the long run.

B. Total revenue covers all variable cost of production exactly.

C.P= AC

D. MR less than AR



1
Expert's answer
2021-07-14T12:02:18-0400

The correct option is C. P = AC


The market is in a long-running equilibrium, where all companies produce zero level economic profits at the output level of P = MR = MC and P = AC. No firm is encouraged to enter or leave the market.


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