Question

Why will profits for firms in a perfectly competitive industry tend to vanish in the long...

Why will profits for firms in a perfectly competitive industry tend to vanish in the long run?

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Answer #1

Ans. Perfect Competition market is characterised by (a) Larger number of buyer & sellers (b) Homogeneous Product (c) Free trade or no restriction on entry or exit of firms. These features work against the profit mechanism in long run. As there is lot of span of time in hand to tune the factors of production and change the dynamics of market. For example - lot of seller enter in the market producing the same product there by giving lot of opportunity to the buyer to explore available options - leading to loss or lack of profits to producers.

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