In the long run for a purely competitive market, firms will earn only normal profits.

Question

Quizplus · Accepted Answer

In a purely competitive market, in the long run, firms will adjust their output and scale of operation such that they will only earn normal profits. This is because any abnormal profits attract new firms into the industry, increasing supply and driving prices down until only normal profits are earned. Conversely, if firms are making losses, some will exit the market, reducing supply and increasing prices until only normal profits are earned.

In the Long Run for a Purely Competitive Market, Firms