A perfectly competitive market is initially in long-run competitive equilibrium. Each firm in the market is earning zero economic profit. The owner of one firm decides to discriminate against employees of race X by not hiring them, or by firing those employees of race X who currently work for him. If employees of race X are high-quality employees, and other firms hire them, then the owner of the discriminating firm will soon find that his costs rise (above that of other firms) and he will begin earning

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In a perfectly competitive market, firms earn zero economic profit in the long run. If a firm discriminates against high-quality employees, its costs will increase compared to other firms that do not discriminate and hire these high-quality employees. This will lead to the discriminating firm earning below normal profits or incurring losses, as its higher costs cannot be offset by raising prices in a perfectly competitive market.

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