Answer to Question #111315 in Microeconomics for Hiba

Question

A firm in a purely competitive industry has a typical cost structure. The normal rate of profit in the economy is 7 percent. This firm is earning $18 on every $200 invested by its founders.



Instructions: Enter your answers as whole numbers.



a. What is its percentage rate of return?
percent.



b. Is the firm earning an economic profit? .



If so, how large?
percent.



c. Will this industry see entry or exit? .



d. What will be the rate of return earned by firms in this industry once the industry reaches long-run equilibrium?
percent.

Answer 1

a) Percentage rate of return

$18\over200$ $×100=9$

b)Is the firm earning an economic profit.

The firm is earning an economic profit because it is a competetive firm and competetive firms earn economic profits in the short run.

c).In the short run the firm will see entry while in the long run they will see exit

d.)In the long run ,the economic profit will be equal to zero.In a competitive firm , the long run the the average revenue will be equal to the marginal revenue