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 a perfect competition as shown in the figure what happens in the long run if the perfect competition is earning profits in the short run then many entrepreneurs see it profitable as a result of which they enter the industry with which the supply increases as shown in the figure and the price will go down in such a way that the price equals average total cost and this brings down the economic profit to zero on the whole and that is the reason why in the long run a perfectly competitive market earns zero profit