In the long run, a perfect competitor

Question

Quizplus · Accepted Answer

In the long run, a perfectly competitive firm will earn zero economic profits due to the existence of free entry and exit from the market. If a firm earns positive profits, other firms will enter the market to take advantage of those profits, driving down prices and reducing profit margins until economic profits are zero. Similarly, if a firm incurs losses, some firms will exit the market, which will reduce supply and result in higher prices until economic profits are zero. Therefore, a perfect competitor earns zero economic profits in the long run.

In the Long Run, a Perfect Competitor