According to the basic model of pure competition, in the long run all firms in a purely competitive
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According to the basic model of pure competition, in the long run all firms in a purely competitive industry will earn normal profits. If all firms earn only a normal profit in the long run, why would any firms bother to develop new products or lowercost production methods? Explain |
Explanation
The firms earn normal profit in the long run. They try to grow their products because of the competition. They will grow their product and technology and will produce at a minimum price to compete with the other firms. Thus, the new producers will adopt the old production method for producing newly developed goods. In the short run, this creativity will increase the profit of the firms.
Verified Answer
The firms grow the products and technologies and produce at a minimum cost because of the competition. A firm has to innovate its products to compete with the other firms. Then new firms will produce new invented goods in the old production method. This creativity of the firm will increase its profit in the short run.
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