MYTUTOR SUBJECT ANSWERS

72 views

Why do firms in perfect competition earn normal profit in the long run

In the long run, all factors of production are variable. Also, two of the assumptions of firms in perfect competition are free entry and exit, as well as perfect resource mobility.

In the long run, firms making abnormal profit will attract new firms, which will enter freely due to the two assumptions already stated. This would increase the industry supply (and shift the supply curve to the right) which will decrease the industry price.

New firms will stop entering the market once existing firms make zero economic profit.

On the other side, in the long run, firms making losses (producing under the break-even price) will exit the market due to not being able to compete with other firms, which will decrease industry supply (and shift the supply curve to the left), which will increase the industry price.

Firms will exit until the remaining ones make normal profit again.

So in the long run, all firms in perfect competition earn normal profit (or zero economic profit).

Adriel A. 13 plus  Maths tutor, A Level Maths tutor, IB Maths tutor, ...

2 months ago

Answered by Adriel, an IB Economics tutor with MyTutor

Still stuck? Get one-to-one help from a personally interviewed subject specialist

9 SUBJECT SPECIALISTS

£20 /hr

Gabriela S.

Degree: Economics (Bachelors) - Durham University

Subjects offered: Economics, Maths+ 2 more

Economics
Maths
History
French

“About Me I’m an economics student at Durham University. I love learning new things, teaching them to other people and trying to make everything as interesting and understandable as possible! I really enjoy everything related to econom...”

£20 /hr

Elliot G.

Degree: BA Economics and Politics (Bachelors) - Exeter University

Subjects offered: Economics

Economics

“About Me: I am an Economics and Politics student at the University of Exeter. I have always found these subjects fascinating due to how applicable they are to every day life and hope that my tutorials will instill that belief in you t...”

MyTutor guarantee

£20 /hr

Anna Liisa J.

Degree: Biomedical Science (Bachelors) - Kings, London University

Subjects offered: Economics, Chemistry+ 1 more

Economics
Chemistry
Biology

“My name is Anna Liisa Jalakas and I am a biomedical sciences student. I completed my IB diploma in June of 2016 where I achieved a total of 40 points with a 7 in Biology and Economics, and a 6 in Chemistry. I also have IGCSE qualifica...”

About the author

£20 /hr

Adriel A.

Degree: Computer Science (Bachelors) - Kings, London University

Subjects offered: Economics, Physics+ 2 more

Economics
Physics
Maths
Geography
French

“About me My long-lasting passion for sciences and mathematics as well as my recurring intuition for creative problem solving led me to study Computer Science at King's College London. I have taught in many different environments, fro...”

MyTutor guarantee

You may also like...

Other IB Economics questions

What is the Monopoly Market Structure?

How does GDP perform as an indicator of economic welfare?

Leur or leurs?

How to I approach the 10 mark question on paper 1?

View IB Economics tutors

Cookies:

We use cookies to improve our service. By continuing to use this website, we'll assume that you're OK with this. Dismiss

mtw:mercury1:status:ok