Question

In the short period, a perfectly competitive firm earns ________.

• A. normal profit
• B. super normal profit
• C. can incur losses
• D. all the above

Answer 1

The correct option is D all the above

Under perfect competition, there is freedom of entry and exit of firms due to which the firm earn super normal profits as well as loss in the short run. Therefore, when there is super-normal profits in the market the new firms tend to enter the market to get the benefit of such profits due to which the supply of the commodity is increased and price falls and when there is super-normal loss in the market the new firms tend to exit the market to avoid such losses due to which the supply of the commodity is decreased and price increases respectively. Due to these entry and exit mechanism, the firms in the market only earn normal profits after such entry and exit.