Why do firms in a perfect competition always make normal profit in the long run?

Market structures are models used by economists to represent the conditions of the market of particular goods. The answer to the question lies in one of the assumption to be made in the model of perfect competition: no barriers to entry or exit. That is to say, firms can enter or leave a market without major obstacles. Firms evaluate whether staying, entering or exiting a market based on the profit made. This is to a very great extent dependent on the demand for a good/service.If demand rises, ceteris paribus (all other variables kept constant), the price of a good/service increases, and so does the profitability of each firm. Assuming that they were previously making normal profit, they are now making abnormal profit. Other economic agents (e.g. entrepreneurs) are now attracted by such abnormal profit, so new firms enter the market. As supply increases, price decreases until it meets the original, at which each firm is once again making normal profit. The opposite happens if demand decreases. (The explanation is to be carried out with two diagrams in the whiteboard, showing the supply and demand changes previously described).This question could come up in your Paper 1.

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