Question

Which of the statements is true about the balance of industries in the long run?

In the long run,

all firms will earn below‑normal profits.

all firms will earn above‑normal profits.

all firms will earn normal profits.

some firms will earn a normal profit while others earn below‑normal profits.

Answer 1

Ans.

Correct statement is that :
In the long run,

- all firms will earn normal profits.

Explanation :Firms that are operating in a very competitive environment with no barriers to entry from other competitors can expect, in the long run, to be unable to earn a positive above normal profit because the excess rate of return would attract entrants who would produce more output and ultimately drive the market price down to the level at which each firm is at best just earning a normal profit.