Normal Profits occur when all firms in a market are producing at their economic optimum and:Question 14Answera.no firms are exiting the industry.b.new firms are being attracted into the industry.c.the long run equilibrium market price for the industry is above the market price for the product.d.each resource is earning a return that is neither greater nor less than its next-best employment possibility (its opportunity cost).e.each firm's marginal revenue is greater than its marginal
Question
Normal Profits occur when all firms in a market are producing at their economic optimum and:Question 14Answera.no firms are exiting the industry.b.new firms are being attracted into the industry.c.the long run equilibrium market price for the industry is above the market price for the product.d.each resource is earning a return that is neither greater nor less than its next-best employment possibility (its opportunity cost).e.each firm's marginal revenue is greater than its marginal
Solution
The correct answer is d. Normal Profits occur when each resource is earning a return that is neither greater nor less than its next-best employment possibility (its opportunity cost). This is because in a perfectly competitive market, firms will adjust their output until they are making just enough profit to stay in the business, which is the point where their revenue equals their opportunity cost. If they were making more than this, other firms would enter the market and drive down prices. If they were making less, firms would exit the market and prices would rise. Therefore, normal profit occurs when firms are making just enough to cover their opportunity costs.
Similar Questions
The market condition in which firms do not face incentives to enter or exit the market and firms earn a normal profit is known as:Multiple choice question.long-run equilibrium.short-run equilibrium.a shortage.market equilibrium.
Firms in long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total cost curves becauseQuestion 2Select one:a.firms seek maximum profits and to do so they must choose to produce where average costs are minimized.b.firms maximize profits and free entry implies that maximum profits will be zero.c.free entry implies that long-run profits will be zero no matter how much each firm produces.d.firms in the industry desire to operate efficiently.
In the presence of _______ profits, firms enter until the market reaches the point at which the firms are generating a(n) ______ profit; then entry stops and the market settles into its long-run equilibrium.Multiple choice question.accounting; positiveeconomic; normaleconomic; supernormalaccounting; normal
Normal profit is also known as zero profit.
Firms that operate in a perfectly competitive industry __.Multiple choice question.make long-run or normal profitsdifferentiate their productsdo not differentiate their productsnever incur short-run profits
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