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Why are economic profits driven to zero in perfectly competitive and monopolistically competitive markets?

Why are economic profits driven to zero in perfectly competitive and monopolistically competitive markets?

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Answer #1

A perfectly competitive market and the monopolistically market have one thing in common that is free entry and exit of the firm.

When the firms in these market are making a supernormal profit it attracts more other firms in the industry market. when new entrants enter the marker they increase the supply and reduce the price. At a lower price, the profit is less. This continues to the point where the profit becomes zero.

Therefore, in a perfectly competitive market and a monopolistically competitive market economic profit is zero in the long run.  

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