[amp_mcq option1=”Both A and R are individually true and R is the correct explanation of A” option2=”Both A and R are individually true, but R is not the correct explanation of A” option3=”A is true, but R is false” option4=”A is false, but R is true” correct=”option2″]<\/p>\n
The correct answer is: Both A and R are individually true and R is the correct explanation of A.<\/strong><\/p>\n In a perfectly competitive market, firms are price-takers, meaning that they cannot influence the market price of their product. In the long run, firms will enter or exit the market until economic profit is zero. This is because if economic profit is positive, firms will enter the market, increasing the supply of the product and driving down the price. If economic profit is negative, firms will exit the market, decreasing the supply of the product and driving up the price.<\/p>\n At the point where price equals minimum long run average cost, firms are making zero economic profit. This is because the price is equal to the average cost of production, including all fixed and variable costs. At this point, firms are not making any more or less profit than they would if they were not producing any output.<\/p>\n Since firms are making zero economic profit, there is no tendency on the part of any existing firm to stage an exit, and no potential entrant wants to enter the industry. This is because there is no opportunity for firms to make economic profit in the long run.<\/p>\n Therefore, both A and R are individually true and R is the correct explanation of A.<\/p>\n","protected":false},"excerpt":{"rendered":" [amp_mcq option1=”Both A and R are individually true and R is the correct explanation of A” option2=”Both A and R are individually true, but R is not the correct explanation of A” option3=”A is true, but R is false” option4=”A is false, but R is true” correct=”option2″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-49592","post","type-post","status-publish","format-standard","hentry","category-economics","no-featured-image-padding"],"yoast_head":"\n