In the long run, perfectly competitive firms make zero economic profit. This result is due mainly to which of the following assumptions?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the assumption of unrestricted entry and exit ensures that if firms are making economic profits, new firms will enter the market, increasing supply and driving down prices until only normal profits are made. Conversely, if firms are making losses, some will exit, reducing supply and driving prices up until normal profits are restored. This process leads to zero economic profit in the long run.

In the Long Run, Perfectly Competitive Firms Make Zero Economic