Firms in perfect competition can only make profits in the short run because

Question

BlackTom AI · Accepted Answer

In perfect competition, firms are price takers and entry and exit are free, so short-run economic profits attract new firms and drive the market to zero economic profit in the long run.

1. Relevant knowledge points and concepts
- Perfect competition: many firms, identical products, price-taking behavior, free entry and exit.
- Profit condition: economic profit per firm π = (P − ATC) × Q, where P is market price, ATC is average total cost, and Q is output.
- Long-run equilibrium: firms earn zero economic profit (P = minimum ATC) because entry/exit adjusts supply and price.

2. Step-by-step reasoning
- Suppose in the short run P0 > ATC at the firm’s profit-maximizing output (MR = P = MC). Then π = (P0 − ATC) × Q > 0.
- Positive economic profit signals opportunity to other potential entrants.
- New firms enter the industry, increasing market supply.

3. Intermediate steps / algebraic illustration
- Initial profit per unit = P0 − ATC. Total profit = (P0 − ATC)Q > 0.
- Entry shifts supply right: S → S'. New equilibrium price falls from P0 to P1.
- Entry continues until P* = minimum ATC, at which point (P* − ATC) = 0 → π = 0.

4. Why the correct answer is correct
- Answer c states that long-run entry brings prices down. That is the core market mechanism in perfect competition: free entry causes supply to increase until economic profits are eliminated and price equals minimum ATC.

5. Why other options are incorrect
- a: Incorrect — products are not highly differentiated in perfect competition; they are identical.
- b: Incorrect — high barriers to entry would prevent entry and allow long-run profits; perfect competition assumes low/no barriers.
- d: Incorrect — opportunity costs being “too high” is not the mechanism that eliminates profits in perfect competition.

6. Conclusion
- Therefore, the correct choice is c. in the long run, new firms will enter the market, bringing prices down. This matches the provided answer.

Firms in perfect competition can only make profits in the short run because单项选择题

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