Explain why firms make zero economic profits in economy

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Q. Plot marginal product of labour function. If price of output (P) is $50 and money wage (W) is $250, what are profit maximizing levels of employment and output in economy. Also, assuming economy is in a long run equilibrium, show fraction of total output earned by labour and fraction of total output earned by capital. Explain why, in long run, firms make zero economic profits in this economy.

Reference no: EM1369382

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