In long-run equilibrium there will be no economic profit in a purely competitive static economy because:
A) barriers to entry will prevent profit from arising
B) there will be no uncertainty, no innovations, and no monopoly
C) there will be no need for professional managers and therefore no profit rewards will be needed
D) the marginal revenue product of capital will be zero.
The correct answer is B) there will be no uncertainty, no innovations, and no monopoly.
To understand why this answer is correct, let's break down each option and explain why they are true or false.
A) Barriers to entry will prevent profit from arising: In a purely competitive market, there are no barriers to entry, meaning new firms can freely enter the market without any restrictions. This would actually lead to economic profit in the short run as new firms would be able to earn profits by entering the market and increasing supply. However, in the long run, new firms entering the market will increase supply, driving down prices and eliminating economic profit. So, while this statement is partially true in the long run, it does not fully explain why there will be no economic profit in the long-run equilibrium.
B) There will be no uncertainty, no innovations, and no monopoly: This statement is correct. In a purely competitive static economy, there is perfect competition, meaning firms are price takers and cannot influence the market price. In such an environment, there is no uncertainty because all firms have complete information about prices, costs, and market conditions. Additionally, there are no innovations or technological advancements because all firms produce homogeneous products using the same technologies. Lastly, there are no monopolies because there are many firms competing against each other, eliminating any individual firm's ability to exert monopoly power. These factors result in no economic profit in the long run.
C) There will be no need for professional managers and therefore no profit rewards will be needed: This statement is not directly related to the absence of economic profit in the long-run equilibrium. Even in a purely competitive static economy, firms may still require professional managers to efficiently organize and lead their operations. The presence or absence of professional managers does not itself determine the presence or absence of economic profit.
D) The marginal revenue product of capital will be zero: The marginal revenue product of capital is the additional revenue generated from employing an additional unit of capital. In a purely competitive static economy, firms are price takers, meaning they cannot affect the market price. Therefore, the marginal revenue for each unit of the product is equal to the market price. If the market price is greater than the marginal cost, firms will earn economic profit. However, in the long-run equilibrium of a purely competitive market, prices will adjust to the point where firms earn zero economic profit. So, while the marginal revenue product of capital may not be zero, profits will be driven down to zero in the long run.
To summarize, the correct answer is B) there will be no uncertainty, no innovations, and no monopoly, because these factors explain why there will be no economic profit in the long-run equilibrium of a purely competitive static economy.