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Zero Profits in the Long-Run

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PPGPortal > Home > Concept Dictionary > W, X, Y, Z > Zero Profits in the Long-Run
 

Zero Profits In The Long Run

This principle states that in a competitive industry with free entry, economic profits will be driven to zero by new entrants in the long run.

(Dwayne Benjamin, Toronto PPG 1002H)

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This is true, in theory, because economic models predict that when profits are positive, there will be an incentive for new firms to enter the market in order to acquire some of those profits. When profits are zero, the industry stops growing, since there is no longer an inducement to enter.

     

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