Question

​​​​​​​Very briefly explain whether it is possible for firms in a perfectly competitive market to earn zero economic profit even if they have incurred a sunk cost upon entry into the market. Provide an example of such a cost.

Answer 1

Yes, it is possible for a firm in perfectly competitive market to earn zero economic profit. It happens when the companies are in perfectly competitive market for long run.

In perfect competition market profit and losses are in only short run there is no condition for profit or loss in long run as sellers sell homogeneous product and buyer has the perfect knowledge about the market.

Sunk cost is the cost which is incurred and cannot be recovered in future. Example like rent. So sunk cost incurred in perfectly competitive arket also cannot be recovered.

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