In a perfectly competitive market, profit attracts entry of new firms in the market in the long run.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, there are no barriers to entry or exit, meaning that new firms can easily enter the market to compete for profits. As new firms enter, the supply of goods or services increases, which leads to a decrease in prices and a reduction in profits for each individual firm. This process continues until all firms in the market earn only normal profits, which consists of covering the costs of production but not earning any additional profit. Therefore, profit in the long run is not sustainable in a perfectly competitive market, and any initial profits will attract new firms to enter and compete, driving down profits for all firms in the long run.

In a Perfectly Competitive Market, Profit Attracts Entry of New