When perfectly competitive firms in an industry are earning positive economic profits,

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms earn zero economic profits in the long run equilibrium. Therefore, if firms are earning positive economic profits, it suggests that there is a temporary deviation from the long-run equilibrium. This attracts new firms to enter the market, which will increase competition, decrease market price, and reduce economic profits over time. Hence, we would expect entry into the industry.

When Perfectly Competitive Firms in an Industry Are Earning Positive