In a perfectly competitive industry,over the long run,
A) economic profits tend to persist.
B) the number of firms in an industry grows.
C) economic losses tend to persist.
D) the number of firms in an industry shrinks.
E) economic profits and losses are driven towards zero by entry and exit.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, economic profits and losses are driven towards zero by the entry of firms if there are profits to be made and the exit of firms if there are losses being incurred. This leads to a situation where firms are only making a normal rate of return, and no economic profits or losses are being made in the long run. Therefore, the number of firms in the industry will not necessarily grow or shrink, but rather adjust to the level of demand and supply in the market.

In a Perfectly Competitive Industry,over the Long Run