What can't a perfectly competitive market earn economic profits in the long run?

Remember, economic profits are not the same as accounting profits. Economic profits account for the opportunity cost of engaging in the business.

If a business is earning economic profits, then somebody else will see there are profits to be made. So, more people will enter into the business line, increasing supply and driving down price. A lower price means lower economic profits for everybody. People will continue to enter until economic profits are driven to zero.

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In a perfectly competitive market, economic profits cannot be earned in the long run due to the following factors:

1. Low Entry Barriers: In a perfectly competitive market, there are no significant barriers preventing new firms from entering the market or existing firms from leaving. This means that if there are economic profits to be made in the short run, new firms will be tempted to enter the market and compete with existing firms. Increased competition leads to a decrease in market price and reduces the profit potential for all firms.

2. Free Flow of Information: In a perfectly competitive market, all buyers and sellers have access to the same information regarding prices, production techniques, and market conditions. This level of transparency helps to ensure that no single firm can have a sustained advantage over others in terms of pricing or efficient production methods.

3. Perfect Substitutes: In a perfectly competitive market, the products or services offered by different sellers are identical or very close substitutes. Due to this, customers do not have any reason to prefer one seller over another, as they can get the same product at the lowest price available. This drives down individual firm's profit margins as they cannot charge higher prices to increase their profits.

4. Absence of Market Power: In a perfectly competitive market, no single firm or group of firms has the ability to influence market conditions or set prices. The market is characterized by many small firms, each having an insignificant market share. As a result, individual firms have no market power to control prices and increase their profits.

Considering these factors, in the long run, the process of market competition pushes economic profits towards zero. While firms may earn profits in the short run due to temporary factors like innovation, these profits attract new entrants, increase competition, and ultimately reduce profits to a point where no excess economic profits are earned by any firm in the long run.