Scott and Tatiana just purchased a piece of land and a tractor. They plan to sta

Question

Scott and Tatiana just purchased a piece of land and a tractor. They plan to start growing and selling organic eggplant. They have heard that the market for organic eggplant is perfectly competitive. What does that mean in terms of long run profit? Firms will earn positive economic profits in the long run. Firms will earn negative economic profits in the long run. Firms will earn zero economic profit in the long run. Firms will earn zero accounting profit in the long run. Scott and Tatiana also want to know the quantity they should produce to maximize profit. As their economic advisor, you recommend that they: produce as much as possible, regardless of cost. produce until marginal revenue is equal to price. produce until price falls below the average variable cost. produce until marginal cost is equal to marginal revenue.

Explanation / Answer

In a perfectly competitive market, firms can make an economic profit only in the short run. In the long run, there is zero economic profit.

c. Firms will earn zero economic profit in the long run

To maximize profit, they should produce at the point where Marginal Revenues = Marginal costs

d. produce until marginal cost is equal to marginal revenue

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