In the long run, new firms enter a perfectly competitive market when

Question

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New firms enter a perfectly competitive market when there are economic profits to be made. This is because economic profits indicate that the industry is earning more than just covering opportunity costs, which is an incentive for new firms to enter and try to capture a share of those profits. In contrast, when economic profits are zero or negative (normal profit), there is no incentive for new firms to enter since they can only cover their opportunity costs at best.

In the Long Run, New Firms Enter a Perfectly Competitive