Question

Suppose there is an industry of competitive firms in the long-run. Describe the minimum profit any firm will make in this industry, and explain/justify your answer.

Answer 1

In long run perfectly competitive firm earns zero economic profit.

Because there is free entry and exit. When there is positive economic profit in short run, new firm have incentive to enter the market so supply shifts to the right and price decreases. When there is negative economic profit, existing firms will exit the industry and supply shifts to the left and price will increase. At the end of this entry and exit process, in long run all firms earn zero economic profit.

answered by: anonymous