Under perfect competition profits are always zero in the long run. (LO5) a) accounting b) economic c) both economic and accounting d) neither accounting or economic

Accounting profit is the difference between the firm's total revenue and its explicit costs. Explicit costs are the direct payments made to suppliers of goods and services, such as wages, rent, and raw materials. Economic profit, on the other hand, takes implicit costs into account in addition to explicit costs. Implicit costs are the opportunity costs associated with using resources that have alternative uses. Economic profit is the difference between the firm's total revenue and the sum of its explicit and implicit costs.

In perfect competition, the following conditions are present: - A large number of buyers and sellers - Identical products - No barriers to entry or exit - Perfect information - Firms are price takers These conditions allow for competition among firms and push them to produce at the lowest possible cost. In the long run, firms adjust their productions to the market conditions, and new firms enter the market if there are positive economic profits while existing firms exit if they face negative economic profits.

In the long run, firms in perfect competition will adjust their production and resources, and as a result, their economic profits will converge to zero. For example, if a firm has positive economic profits, new firms will be attracted by these profits and enter the market. This will increase supply and lower the market price, making the market more competitive. The higher competition will push the economic profits down. Eventually, the economic profits will reach zero, at which point no new firms will enter the market, and there will be no incentives for firms to exit the market. Accounting profits, on the other hand, may not necessarily converge to zero, as they only consider explicit costs. However, since accounting profits include implicit costs, it is possible for accounting profits to be positive while economic profits are zero (when the accounting profit is equal to the implicit costs).

Since economic profits converge to zero in the long run under perfect competition, the correct answer is: b) economic