Answer to Question #130878 in Microeconomics for Ahmad

Question

Why does a competitive firm make normal profits in long run?

Answer 1

In the long run, the firm receives only normal profits, since in the conditions of free entry and exit from the industry and the availability of complete information about the product from manufacturers and buyers, too high profits attract other firms to production, and unprofitable firms leave the industry or go bankrupt, and then in the industry equilibrium is established: no profit, no loss.