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Question

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

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

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.

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