Profit-maximizing firms enter a competitive market when existing firms in that market have:

• A. zero economic profits
• B. constant marginal costs
• C. positive economic profits
• D. negative economic profits

Answer: (C)

Verified step by step guidance

1. Understand the concept of economic profit: Economic profit is total revenue minus total costs, including both explicit and implicit costs. It indicates whether firms are earning more than their opportunity costs.
2. Recall the behavior of firms in a perfectly competitive market: Firms will enter the market if they see an opportunity to earn positive economic profits, as this signals that the market is profitable beyond normal returns.
3. Recognize that when firms in the market have zero economic profits, it means they are earning just enough to cover all costs, including opportunity costs, so there is no incentive for new firms to enter.
4. Note that if existing firms have negative economic profits, it means they are incurring losses, so firms will exit the market rather than enter.
5. Therefore, profit-maximizing firms enter a competitive market when existing firms have positive economic profits, as this indicates potential for earning above-normal returns.