Which of the following conditions ensures that excess profits cannot persist in a perfectly competitive market over the long run?
A)Large number of firms in the industry.
B)Outputs of the firms are perfect substitutes for one another.
C)Complete information is available to all market participants.
D)Ease of entry into the market.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the ease of entry into the market ensures that excess profits cannot persist in the long run. When there are excess profits, new firms will be incentivized to enter the market, increasing competition and driving down prices until profits are reduced to zero. The other options (large number of firms, perfect substitutes, complete information) are also characteristics of a perfectly competitive market, but do not directly address the issue of excess profits.

Which of the Following Conditions Ensures That Excess Profits Cannot