What role do PROFITS play in a perfectly competitive market? What role do LOSSES play in...

What role do PROFITS play in a perfectly competitive market?

What role do LOSSES play in a perfectly competitive market?

Expert Solution

The profits play a crucial role in a industry as it attracts new firms to the enter the Market. In perfect competition there is free entry of new firms. new firms enter, the supply curve shifts to the right, price falls, and the profits fall. Firms will keep entering the Market until the economic profit is zero.

losses also play a crucial role in perfectly competitive market because in perfect competition there is free exit of firms. If a firm is experiencing losses it is free to leave the market. The supply curve shifts to the left, increasing price and reducing losses. Firms continue to leave until economic profits are zero.

Rahul Sunny answered 2 years ago

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