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Microeconomics

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Zero Profits in Perfect Competition

MICRO-1IEND6

One assumption of perfectly competitive markets with free entry is that firms making zero profits will choose to remain in the market. Is this a realistic assumption?

A

This is an unrealistic assumption because real firms wouldn't stay in a market if they were making zero profits. The owners would be better off doing something else.

B

This is a realistic assumption if you are thinking of firms making zero economic profits.

C

This is a realistic assumption if you are thinking of firms making zero accounting profits.