Consider again the perfectly competitive, profit-max firm (we can call it Firm A) that sells its output for $2 each and produces and sells 800 units. Its total variable costs are $900 and its total fixed costs are $100. The owner of the firm estimates he could make $750 working elsewhere with the same time and effort.

• Calculate its accounting profit, carefully following all numeric directions. We'll use this information again in the next question.

Given what we know about perfectly competitive markets and profits, the above information implies that, in the long run

1. existing firms will exit, raising Firm A's economic profit
2. new firms will enter, lowering Firm A's economic profit
3. new firms will enter, raising Firm A's economic profit
4. existing firms will exit, lowering Firm A's economic profit