Profits encourage entry into purely competitive industries and losses encourage exit from purely competitive industries because...
Profits encourage entry into purely competitive industries and losses encourage exit from purely competitive industries because
1. when losses are negative, firms cannot cover explicit costs.
2. when profits are zero, the firm is earning sufficient revenue to cover its opportunity cost.
3. when losses occur, firms need to raise the prices of their products.
4. when profits are positive, the firm is earning sufficient revenue to cover its opportunity cost.
Homework Answers
Ans: when profits are zero, the firm is earning sufficient revenue to cover the opportunity cost.
Explanation:
If the firm is earning zero economic profit, it means the firms are earning a return on their investment and time that is equal to the opportunity costs of investment and time.
Thus, option [2] is correct answer.
Add Answer to:
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