In a perfectly competitive industry, firms will earn zero economic profits from innovation.

Question

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In a perfectly competitive industry, firms are small players without market power, and any innovation that a firm introduces will be quickly copied by other firms. This means that any temporary economic profits that a firm earns from innovation will be competed away in the long run, resulting in zero economic profits. Therefore, in a perfectly competitive industry, firms will not earn any sustained economic profits from innovation.

In a Perfectly Competitive Industry, Firms Will Earn Zero Economic