Question

if the atc curve shift down, what happens to the economic profits? is the market in long-term equilibruim? explain.

Answer 1

If the ATC curve shifts down, that means the cost of production falls down on an average, that leaves the firm with an economic profit. Now, profits will attract new firm entries in the long-run. and entry will continue as long as the firms continue making an economic profit.

The message of long-run equilibrium in a competitive market is a profound one. The ultimate beneficiaries of the innovative efforts of firms are consumers. Firms in a perfectly competitive world earn zero profit in the long-run. While firms can earn accounting profits in the long-run, they cannot earn economic profits.