Answer to Question #210947 in Microeconomics for Momin ali

Question

Why do competitive firms stay in Business if they make zero profit? Give reasons.

Answer 1

In a perfectly competitive market, so many firms are producing the same products that in the long-run no firm will be able to attain the power to influence the industry. When a firm makes zero economic profit it means,that all the workers, managers and even lenders are earning their equilibrium returns. So competitive firms stay in business because the total cost includes all the opportunity costs of the firm. The firm's revenue compensates the owners for the time and money they used to keep the business going.