"For a perfectly competitive market, an economic profit attracts new firms. But when these firms enter the market, the price falls and the economic profit is eliminated"

Question

Are the previous statements correct or incorrect? What is the long-run profit or loss outcome for firms in a perfectly competitive market?

Answer 1

The statements are correct. As the statements point out, in the long run the economic profit of perfectly competitive firms is eliminated by entry. Similarly, an economic loss will be eliminated by exit. Therefore the long-run equilibrium profit for a perfectly competitive firm is a normal profit.