Question

1.

For a firm in a perfectly competitive industry,

		short-run and long-run economic profits must be zero.
		short-run economic profits must be zero.
		both short-run and long-run economic profits may be negative.
		short-run economic profits may be positive, but long-run economic profits must be zero.

2. At a market clearing price,

		the quantity demanded will just equal the quantity supplied.
		the demand function will shift outward.
		there will be a tendency for price to rise over time.
		there will be a shortage.

Answer 1

1) short-run economic profits may be positive, but long-run economic profits must be zero. There can be economic profits in the short run because firms cannot exit or enter the market in the short run. But as soon as the entry and exit is allowed in the long run all the profits are driven down to zero.

2) the quantity demanded will just equal the quantity supplied. This is because the market equilibrium price is the onethat is acceptable to both the buyers and sellers so that the market is said to be cleared.