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Explain the process that drives the economic profit to zero in the long run for a perfectly competitive firm?
Wiki User
∙ 11y ago
In perfectly competitive markets, economic profits are zero in the long run because firms are able to enter and exit the market.
If firms in a perfectly competitive market are profitable, there would be an incentive for new firms to enter. Supply would increase, causing an increase in quantity and the price to be driven back down to equilibrium: NO PROFIT!
If firms in a perfectly competitive market are suffering a loss, some firms would choose to exit the market. Supply would decrease, causing a decrease in quantity and the price to be driven back up to equilibrium: NO PROFIT!
Wiki User
∙ 13y ago
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