In perfect competition, long-run equilibrium occurs when the economic profit is:

• A. negative
• B. zero
• C. positive
• D. maximized

Answer: (B)

Verified step by step guidance

1. Understand the concept of long-run equilibrium in perfect competition: it is the state where firms have no incentive to enter or exit the market because economic profits are stable.
2. Recall that economic profit is total revenue minus total costs, including both explicit and implicit costs. In the long run, firms can adjust all inputs and new firms can enter or exit the market.
3. Recognize that if economic profit were positive, new firms would enter the market, increasing supply and driving down prices until profits are eliminated.
4. Similarly, if economic profit were negative, some firms would exit the market, reducing supply and increasing prices until the remaining firms break even.
5. Conclude that in long-run equilibrium under perfect competition, economic profit must be zero, meaning firms earn just enough to cover all their costs, including opportunity costs.