In the long run,profits will equal zero in a competitive market because of
A) constant returns to scale.
B) identical products being produced by all firms.
C) the availability of information.
D) free entry and exit.

Question

Quizplus · Accepted Answer

In a competitive market, there is free entry and exit, meaning that firms can enter or exit the market at low cost. When profits are positive, new firms enter the market, increasing the supply of goods and services, which decreases the price and profits. Conversely, when profits are negative, firms exit the market, decreasing the supply, which increases the price and profits. As a result, in the long run, profits will equal zero in a competitive market because any positive profit will be competed away through free entry, and any negative profit will be extinguished through exit.

In the Long Run,profits Will Equal Zero in a Competitive