Question

Entry into a perfectly competitive industry occurs whenever: Multiple Choice economic profit is greater than zero. economic profit is equal to zero. accounting profit is equal to zero. accounting profit is greater than zero.

Answer 1

Since economic profit= Total revenue - ( explicit cost + implicit cost)

Accounting profit= Total revenue - explicit cost

Since the firm is perfectly competitive firm and profit-maximizing condition are

P=MC

There are large number of firms and buyers and there is free entry and exit. The firm is price taker and industry is price maker. The more firm will like to enter in the industry only when the economic profit is greater than zero. This economic profit will attract more firms.

So when more firms enter in the industry. Hence the supply increases and so the price decrease. Hence profit will also decrease.

Hence option first is the correct answer.