Answer to Question #216796 in Economics of Enterprise for Ehliey

Question

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

Answer 1

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.