In long-run equilibrium there will be no economic profit in a purely competitive static economy because:
1- barriers to entry will prevent profit from arising.
2-there will be no uncertainty, no innovations, and no monopoly.
3- there will be no need for professional managers and therefore no profit rewards will be needed.
4- the marginal revenue product of capital will be zero
The correct answer is 2- there will be no uncertainty, no innovations, and no monopoly.
In a purely competitive static economy, there are several reasons why there would be no economic profit in long-run equilibrium. One of the main reasons is the absence of uncertainty and innovation.
In a dynamic and uncertain economic environment, firms can make innovations, introduce new products or technologies, and differentiate themselves from their competitors. These actions can create economic profit in the short run as firms gain a competitive advantage. However, in the long run, other firms will enter the market, imitate the successful innovations, and drive down prices.
In a purely competitive static economy, there are no barriers to entry, meaning that new firms can easily enter the market. As a result, any economic profit earned by existing firms will attract new entrants until the profits are competed away. This competition leads to price reductions, reducing the potential for economic profit for all firms.
Furthermore, in a purely competitive static economy, there is no monopoly power. Monopoly power allows a firm to maintain economic profit in the long run by controlling prices and limiting competition. In a purely competitive market, no firm has the ability to exercise such power, ensuring that there will be no economic profit in the long run.
It is important to note that the marginal revenue product of capital being zero, as mentioned in option 4, may be a potential outcome in a purely competitive static economy in the long run. However, it is not the sole reason for the absence of economic profit in long-run equilibrium.