The reason why firms in perfect competition end up with no economic profit in the long run is that
A) they do not have the knowledge to run the firm correctly
B) in the long run, firms lose competitiveness
C) in the long run, costs rise to equal prices
D) if they make an economic profit, new firms will enter the industry, driving the price down, and this continues until economic profit is zero
E) in the long run, the losses of firms who leave the industry equals the economic profit of those who remain

Question

Quizplus · Accepted Answer

In perfect competition, if firms are making an economic profit, it attracts new firms into the industry because there are no barriers to entry. This increases the supply of the product, which drives the price down. The process continues until the economic profit is eliminated, leaving firms with zero economic profit in the long run.

The Reason Why Firms in Perfect Competition End Up with No