The figure given below shows the revenue and cost curves of a perfectly competitive firm.Figure 10.5
MC: Marginal cost curve
MR: Marginal revenue curve.ATC: Average-total-cost curve
AVC: Average-variable-cost curve
-Why do the perfectly competitive firms earn only normal profits in the long run?

Question

The figure given below shows the revenue and cost curves of a perfectly competitive firm.Figure 10.5
  MC: Marginal cost curve
MR: Marginal revenue curve.ATC: Average-total-cost curve
AVC: Average-variable-cost curve
-Why do the perfectly competitive firms earn only normal profits in the long run?

Quizplus · Accepted Answer

In a perfectly competitive market, there is free entry and exit of firms. This means that if firms are earning profits in the short run, new firms will be attracted to the market. As more firms enter the market, the supply of the product increases, leading to a decrease in the price of the product. This ultimately leads to a situation where all firms in the market earn only normal profits in the long run. Therefore, option E is the best choice. The other options (A, B, C, and D) are not correct because they do not explain why perfectly competitive firms earn only normal profits in the long run.

The Figure Given Below Shows the Revenue and Cost Curves