A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. As a result, existing firms in the market begin to __________. By the time all adjustments have been made, profits will __________.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, an increase in demand initially allows firms to earn positive economic profits as prices rise. However, these profits attract new firms into the market, increasing supply until prices fall back to the level where firms earn zero economic profit in the long run.

A Perfectly Competitive Market Is Initially in Long-Run Competitive Equilibrium