Answer to Question #75966 in Economics for Sihle Ndarane

Question

Explain using a properly diagrams, why a perfectly competitive firm will earn only normal profit in a long-run

Answer 1

Firms can only make normal profits in the long run, although they can make abnormal (super-normal) profits in the short run. It is because in the long run the number of firms is such that P = MR = MC = LATC and LATC is a its minimum.