Answer to Question #250957 in Microeconomics for Esther

Question

How can a competitiveMutale: à ƒ ƒ ¢ € œHow can competitive profits be zero in the long run? Who will work for nothing?à ƒ ƒ ¢ € 
Mary: à ƒ ƒ ¢ € œIt is only excess profits that are wiped out by competition. Managers get paid for their work; owners get a normal return on capital in competitive long-run equilibriumà ƒ ƒ ¢ € ”no more, no less.à ƒ ƒ ¢ € 

Answer 1

In completely stable markets, the items are homogeneous. There is sectioning/entry and exit of organizations.

The cost is controlled by the business which is trailed by the organizations.

The organizations are consequently called value takers.

In the short run, a firm will earn supernormal profits or incur losses, but in the long run, the firm earns normal profits.

Supernormal profits are earned when the price is greater than the marginal cost of the firm , that is , the price determined by the industry is greater than the additional cost incurred.