In the long run, firms in a competitive market

Question

Quizplus · Accepted Answer

In the long run, firms in a competitive market will earn zero economic profit. This is because in a competitive market, there exists perfect competition, meaning there are many buyers and sellers that are essentially offering the same product. This means that if one firm tries to increase their price, they will lose their customers to another firm offering the same product at a lower price. As a result, in the long run, firms in a competitive market will be forced to operate at the minimum point of their average total cost curve, where they earn zero economic profit.

In the Long Run, Firms in a Competitive Market