Assume the wool industry is perfectly competitive. Why is it difficult for a wool producer to make excess profits in the long run?
A) the fact that wool producers are ʺprice takersʺ
B) the assumption that wool producers in the industry do not ʺdifferentiateʺ their products
C) the fact that the demand curve facing each wool producer is perfectly elastic
D) There is free entry into the wool industry.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, free entry ensures that any short-term excess profits attract new firms, increasing supply and driving prices down until only normal profits are possible in the long run.

Assume the Wool Industry Is Perfectly Competitive