In the long run, because of the entry and exit of firms in the marketplace, a perfectly competitive firm can expect only normal profits.

Question

Quizplus · Accepted Answer

In the long run, if there are no barriers to entry and exit, existing firms will earn only normal profits because new firms will enter the market, increasing competition and driving down prices and profits for existing firms. Similarly, if existing firms are earning below normal profits, some may exit the market, decreasing competition and allowing remaining firms to earn higher profits.

In the Long Run, Because of the Entry and Exit