For a firm in a perfectly competitive industry

Question

Quizplus · Accepted Answer

In the short run, a firm in a perfectly competitive industry may earn economic profits due to temporary market conditions, such as a sudden surge in demand or a decrease in production costs. However, in the long run, these abnormal profits will attract new firms to enter the industry, which will increase supply, lower prices, and reduce profits to zero. Therefore, in the long run, firms in a perfectly competitive industry can only earn normal returns on investment, which means that their economic profits must be zero.

For a Firm in a Perfectly Competitive Industry