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explain in detail how a perfectly competitive firm and market can begin with short-run economic profit...

explain in detail how a perfectly competitive firm and market can begin with short-run economic profit and then move to a position of long-run equilibrium.

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Answer #1

Give market price , at Profit Maximizing quantity ( p=MC) ,the average total cost is lower than price than firm is making a positive Profit in short run.

As these positive profit will attract new firms to enter the market. When new firms enter the market,the market supply Increases,which lead to decrease in equilibrium market price.

Decrease in market price lead to ,each firm yo operate at minimum average cost point . So that all firms earning zero economic profit.and industry reach long run equilibrium

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