Question

1. Why can't perfect competitors make an above-normal profit in the long-run?

2. In your own words, explain the outcomes of a perfectly competitive system in the long-run.

3. Why don't we have a perfectly competitive system?

Answer 1

1.
Perfect competition is characterised by more number of sellers selling identical goods and easy entry-exit for firms. So for an initial high profit it attracts more number of sellers which eventually reduces the profit share and any increase in price would lead to lose of business.

2.
So, in the long run all firms would sell at same price and at minimum ATC = MC=MR

3.
In a competitive world it becomes difficult to sustain in the long run by selling the identical goods. So in order to have a separate identity it gets into value addition and branding which would help to differentiate and be safe in the market. This would eventually become a monopolistic market from perfect competition.