Question

Why all the firms in perfect completive market earn only zero economic
profits in the long-run equilibrium?(400-500 words w diagram for better understanding)

Answer 1

In the short run firms either earn positive, negitive or normal profit.

If they are earning Normal Profit ,then there will be no entey or exit in the market , and market will be in the long run Equilibrium as in short run equilibrium.

If firms earning positive profit,then positive profit attract new firms to emter the market, because entry and exit free,then new firms will enter the market and increase market supply,which Decrease market price.decrease in price Level lead to decrease in Profit and all firms earn normal Profit.

If firms are earning negitive profit ,then some firms will exit the market and Decrease market supply,which Increases market price . Increase in price lead to reduction in their losses and all firms earn normal Profit.

When all firms earn normal Profit ?,no new firms has INCENTIVE to enter the market and no exiting firm has INCENTIVE to exit the market,which lead to market in stable condition and long run Equilibrium.

So due to free entry and exit ,all firms earn normal Profit in long run perfect competition equilibrium.