Answer to Question #212813 in Microeconomics for Christina Walu Ara

Question

"What is the point of entering a perfectly competitive industry if it is simply to earn zero profits anyway?" Discuss this statement with reference to the long and short run, as well as to heterogeneity across firms. 

Answer 1

In a fully competitive market, enterprises, products, and knowledge are all identical. It's a far-fetched and idealized scenario. As a result, the businesses are price takers with no price control. Competition guarantees that the most cost-effective allocation is found. However, in the long run, each firm's profit is reduced to zero as a result of this process.