Question

What happens in a competitive industry in the long run when firms enter because profits are being made in the short run? I am new to the economic topic of perfect competition can someone help give overview?

Answer 1

When their are profits being made in the short run new firms will enter the market...this will increase the competition hence every firm would try be to as effecient as possible and would try to lower their cost (with economies of scale or lower cost of production reduce their expenses) in order to compete with the market..hence the product will be of quality and cheaper so consumers would be have advantage of better quality products.

Answer 2

Extremely high profits will stop being made