Profits or losses must be temporary for perfectly competitive firms. Why?

What will be an ideal response?

Profits must be temporary for perfectly competitive firms because new firms are free to enter the industry if profits greater than the average that they can obtain by investing elsewhere are available in our industry. For the same reason, old firms will leave if they cannot cover their costs in the long run.

Economics

You might also like to view...

According to David Ricardo, an increase in government spending without any tax increase will not increase aggregate demand because

A) consumers will increase their consumption proportionately more than Keynesian economists believe they will. B) consumers will save less than they otherwise would have. C) consumers will consume less and save more to prepare for increased taxes in the future. D) the private sector is more likely than the public sector to spend any extra income on national defense.

Economics

If there is an increase in the price of broccoli because of disastrous weather that destroys about half of this year's spinach crop, which of the following could be TRUE?

A) The cross elasticity of demand between spinach and broccoli is negative 1.25. B) The demand curve for broccoli has shifted rightward and the cross elasticity of demand between spinach and broccoli is positive. C) The demand curve for spinach has shifted to the leftward and the cross elasticity of demand between spinach and broccoli is positive. D) The demand curves for spinach and broccoli have become more cross inelastic.

Economics