When firms are neither entering nor exiting a perfectly competitive market:

Question

Quizplus · Accepted Answer

In a perfectly competitive market, there are no barriers to entry or exit, meaning firms can easily enter or exit the market depending on their profitability. However, in a situation where firms are neither entering nor exiting, it implies that economic profits are zero. If there were positive economic profits, new firms would enter the market, driving down prices and reducing profits, while if there were negative economic profits, some firms would exit the market, reducing competition and driving up prices. Therefore, in a perfectly competitive market where firms are neither entering nor exiting, economic profits must be zero.

When Firms Are Neither Entering nor Exiting a Perfectly Competitive