Table of Contents
Why some firms might be able to continue to make an economic profit in the long run discuss?
In the long run, all factors of production are variable. Also, two of the assumptions of firms in perfect competition are free entry and exit, as well as perfect resource mobility. In the long run, firms making abnormal profit will attract new firms, which will enter freely due to the two assumptions already stated.
Why if competitive firms are earning economic profits in the short run are they unable to earn them in the long run if firms are making short run profits?
Due to the entry and exit of firms in the long run, firms only have the opportunity to make an economic profit in the short run. Due to the excessive entry and exit of firms in the short run, firms only have the opportunity to make a normal profit in the long run.
Why are firms productively efficient in the long run?
Productive efficiency means producing without waste, so that the choice is on the production possibility frontier. In the long run in a perfectly competitive market, because of the process of entry and exit, the price in the market is equal to the minimum of the long-run average cost curve.
Why would a firm continue to produce a product that it earns no profit on?
Why Do Competitive Firms Stay in Business If They Make Zero Profit? Profit equals total revenue minus total cost. Total cost includes all the opportunity costs of the firm. In the zero-profit equilibrium, the firm’s revenue compensates the owners for the time and money they expend to keep the business going.
Are there economic profits in the short run?
There are economic profits in the long run but not in the short run. c. In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits. a. the selling price for this firm is above the market equilibrium price.
Why is the number of firms Fixed in the short run?
The short run is a period of time in which the firm can vary its output by changing the variable factors of production in order to earn maximum profits or to incur minimum losses. The number of firms in the industry is fixed because neither the existing firms can leave nor new firms can enter it.
Why are there economic losses in the long run?
There will be economic losses in the long run because of cut-throat competition. b. Economic profits will persist in the long run if consumer demand is strong and stable. c. In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits. d.
When do firms earn zero profits in the long run?
The market is in long-run equilibrium, where all firms earn zero economic profits producing the output level where P = MR = MC and P = AC. No firm has the incentive to enter or leave the market. Let’s say that the product’s demand increases, and with that, the market price goes up.