When a Perfectly Competitive Firm Experiences Zero Economic Profits

question 373

Multiple Choice

When a perfectly competitive firm experiences zero economic profits

• A) the high barriers to entry prevent further competition.
• B) existing firms exit the industry.
• C) additional firms enter the industry.
• D) firms have no incentive to exit or enter the industry.

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Definitions:

Annual Fixed Expenses

Costs that do not vary with the level of production or sales over a year, such as rent, insurance, and salaried personnel wages.

Break-Even

The point at which total costs equal total revenue, resulting in neither profit nor loss.

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production supplies.

Fixed Costs

Expenses that do not change with the level of output or activity, such as rent, salaries, and insurance premiums.