Question

In the short run, under perfect competition, more firms enter the market to produce and earn profits since entrepreneurs see how profitable some of the firms are. What will happen over the long run?

Answer 1

In the long-run, the profit level under perfect competition will fall to zero and every firm will earn the zero economic profit because, in the long-run, the supply under perfect competition will increase due to the new entrants in the industry which will lead to falling in the price level and make the firms to accept the lower prices for their product, therefore, as a result of lower price level the profit level will fall to zero and many firms will exit the industry.