a) The owners of firms in the real world would generally expect (in the long run at least) to have some positive of profits on their accounting...

a) The owners of firms in the real world would generally expect (in the long run at 

least) to have some positive of profits on their accounting statements. However, in 

economic models we usually assume that firms will be willing to operate for zero 

economic profits even for the long term. Explain why this is the case.

b) Explain why the profit maximising price and quantity for a price-setting firm (in a 

market where it can only set one price) will result in an outcome that can be 

considered Pareto inefficient.