The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7

-In long-run equilibrium in perfect competition, the entry and exit of firms will drive economic profits to zero.

Question

The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7
 
-In long-run equilibrium in perfect competition, the entry and exit of firms will drive economic profits to zero.

Quizplus · Accepted Answer

In perfect competition, firms are free to enter and exit the market in the long run. If there are economic profits, new firms will enter the market, increasing supply and lowering prices until profits are reduced to zero. Similarly, if there are losses, some firms will exit the market, reducing supply and raising prices until losses are eliminated. Therefore, in long-run equilibrium in perfect competition, economic profits are driven to zero.

The Figure Given Below Shows the Aggregate Demand and Supply