Question

A competitive firm in the long run, earns only __________.

• A. normal profit
• B. super normal profit
• C. losses
• D. any one of the above

Answer 1

The correct option is A normal profit

Due to free entry and exit in the industry, if the firms in the short run make super normal or subnormal profits this will act as a signal and firms will enter or exit the industry respectively. This will change the supply in the market and thus the price will move back to the point where P = MC and the firm will make normal profits in the long run.