The assumption for perfect competition and monopolistic competition that enables economic profit to move towards zero is

Question

Quizplus · Accepted Answer

Freedom of entry and exit allows for new firms to enter the market when economic profits are positive. As more firms enter, supply increases, and the price decreases, causing economic profits to decrease. Likewise, firms can exit the market when economic profits are negative, which decreases supply, increasing price and profits. This process leads to economic profits moving towards zero in the long run. Perfect information and homogeneous products may be necessary for perfect competition, but they do not necessarily guarantee economic profits moving towards zero. Government involvement may hinder or promote competition, but it is not a necessary assumption for economic profits moving towards zero.

The Assumption for Perfect Competition and Monopolistic Competition That Enables