Answer to Question #51617 in Microeconomics for chantizo

Question

explain why perfectly competitive firms cannot earn positive economic profits in the long run?

Answer 1

Perfectly competitive firms can earn positive economic profits only in the short run, if there is not a lot of firms in the market. But as more and more firms enter the market, because it is possible to earn profits, the lower these profits become, and finally in the long run all firms start to earn only normal (zero) profit in the point, where the market price equals long run average total cost P = LATC, and after that firms stop entering the market and the market is in long run equilibrium.