Question

The reason that firms in perfect competition earn zero economic profit in the long run is that


firms are small


a

there are a large number of sellers


b

firms cannot advertise


c

there are no barriers to entry or exit


d

the commodities produced are relatively inexpensive

Answer 1

d — there are no barriers to entry or exit.

Explanation: free entry (and exit) lets firms enter when existing firms earn positive economic profit, increasing industry supply and driving price down until profits are zero; if firms incur losses they exit, reducing supply and raising price back to zero economic profit.