Question

sun cost. C) an expense. D) a variable cost. 5) Economists proclaim that competitive firms make zero economic profit in the long run. This shows how A) detached economists are from the real world. B) unrealistic economic theory is. C) firms cover all their cost, both monetary and non-monetary. D) firms cover only monetary cost when economic profits are zero. 6) Suppose the total cost of producing T-shirts can be represented as TC 50+2q. The marginal cost of the 5th T-shirt is A) 2. B) 10. C) 12 D) 60. labor. I0-t. If the wage rate is S10 per unit of 7) Suppose the short-run production function is g then AVC equals A) g B) q 10. C) 104. D) İ

Answer 1

5. Economists proclaim that competitive firms make zero economic profit in the long run. This shows how c) firms cover all their cost, both monetary and non-monetary.

• When economic profits are present in a particular industry new firms are attracted to it in the long run. Therefore, entry of new firms causes supply curve to shift to the right leading to the fall in price, hence profit also falls. The process continues until economic profit decreases to zero. On the other hand, when there are economic loses some firms leave the industry. The process continues until the existing firms in the industry are not facing the losses or until firms are earning zero economic profits.