When firms in a perfectly competitive market are earning an economic profit,in the long run

Question

Quizplus · Accepted Answer

In a perfectly competitive market, firms earn zero economic profit in the long run. If some firms are earning an economic profit, it means that they have a cost advantage over their competitors. This will attract new firms to enter the market to earn a share of the profits. As new firms enter, the market supply will increase, causing the price to decrease until all firms earn zero economic profit in the long run. Therefore, new firms will enter the market if existing firms are earning an economic profit.

When Firms in a Perfectly Competitive Market Are Earning an Economic