Perfectly competitive firms have zero economic profits in the long run because

Question

Quizplus · Accepted Answer

In perfectly competitive markets, firms have no control over the price of their product as it is determined by the market. In the long run, if firms are making positive economic profits, new firms can enter the market, increasing supply and driving down the price until profits are zero. Similarly, if firms are making negative economic profits or losses, some firms will exit the market, reducing supply and driving up the price until profits are zero. This process continues until all firms in the market earn zero economic profits in the long run. Freedom of entry and exit ensures that firms cannot earn economic profits in the long run, making choice C the best answer.

Perfectly Competitive Firms Have Zero Economic Profits in the Long