Demonstrate that firms are earning economic profits

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Reference no: EM13801132

a) Apples are bought and sold in a competitive market.

I. Use a graph for the apple market and a graph for an individual firm to demonstrate that firms are earning economic profits.

ii. Explain, without using a diagram, whether the situation in (a) can be maintained in the long run.

b) A student argues: The economic model of a perfectly competitive market is very unrealistic because it predicts that firms in a perfectly competitive market earn zero profits in the long run. However, in reality, no firm would stay in business if it earned no profits. Do you agree or disagree? Explain.

Reference no: EM13801132

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