Under perfect competition, in long-run equilibrium, _____.

Question

Quizplus · Accepted Answer

In long-run equilibrium under perfect competition, all firms will earn zero economic profits. This is because in perfect competition, there are no barriers to entry or exit, and firms can freely enter or exit the market in response to profits or losses. If firms earn positive economic profits in the short run, this will attract new firms to enter the market which will increase supply, lower prices and reduce profits. If firms suffer economic losses, some firms will exit the market, decreasing supply, increasing prices and increasing profits for the remaining firms. In the long run, this process will continue until all firms earn zero economic profits. Therefore, under perfect competition, in long-run equilibrium, all firms will suffer zero economic losses.

Under Perfect Competition, in Long-Run Equilibrium, _____