SOLUTION: Walden University Firm Cost Structure and Perfectly Competitive Markets Questions

Attached.

Prompt 1

Firms in the perfectly competitive industries earn zero economic profits in the long run because
of the existence of free entry and exit into the market, firms being price takers and perfect
knowledge of price/technology. The existence of economic profits in the short run will attract
entry of more firms given that there are no barriers of entry or exit into the market, and this
continues into the long run, where the entry of more firms depletes the economic profits that
were there in the short run, forcing some to start exiting the market. This means that competitive
firms earn zero accounting profits in…