Question

Does the pursuit of maximum profit by individual business owners benefit only themselves or does their self interest sometimes and somehow also benefit the broader society? Include in your discussion how each of the characteristics of a competitive market is relevant to achieving a social benefit from private profit seeking behavior.

Answer 1

In a perfectly competitive market , there are numerous sellers selling identical products . There is free entry and exit of firms . Each firm tries to maximize profit in this market . In short run , suppose firms are earning positive economic profits , so their price or marginal cost is not at nimimum of ATC . Thus new firms are allured towards the market and in the long run due to free entry many new firms enter . This causes the market supply to increase and the price to fall until the break even point or P = MC = Minimum of ATC . This ensures both productive and allocative efficiency in long run . Thus competitive and profit seeking behavior here leads to social benefit .