Question

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

26. Why are generic pharmaceuticals significantly cheaper than name brand ones?

Answer 1

25) In perfect competition, all firms sells homogenous product and there is free entry and exit. Also it assumes perfect knowledge.

when firm earns profit in short run then other firm will see and will enter in the industry which will increase the supply of the goods, lowering prices and profit. There will be entry of new firms until all positive profit vanishes. Thus in long run, all firms produces at a point where P=min of AC I.e. All firms earn mormal profit in long run