What assumptions in the perfect competition model ensure that economic

What assumptions in the perfect competition model ensure that economic profit is zero in the long run? Explain.

What will be an ideal response?

ANSWER

The assumptions that 1 ) market participants have perfect (complete) information and 2 ) there are no barriers to entry ensure that long-run profits will equal zero in a perfectly competitive market. So long as economic profits (losses) exist, firms will enter (leave) the market. Only when long-run profit equals zero will there be no more incentive for entry or exit. The assumption of perfect information ensures that each firm has access to the least-cost method of production. As such, one firm cannot have a cost advantage over other firms in the market.