Michael Hurst
2 min readSep 1, 2020

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I really wish people without the appropriate education or background would stop trying to educate people about something they just learned.

This article describes the decision-making criteria of an individual firm, and as such is a good description. But it does NOT explain why long-term economic profits are zero in perfect competition.

Individual firms, even in a perfectly competitive market, can and do generate profit in the short term. It is only in the long term that profits tend to zero. But that has nothing to do with opportunity cost. It is a simple result of one of the assumptions of perfect competition - the free entry and exit of firms. If a firm is making a profit, it encourages other firms to enter the market, which increases supply, causing price to drop, and the profit for the first profitable firm drops. If enough firms enter, price drops below equilibrium, and some firms experience losses. If the losses persist, firms will drop out until the price rises to equilibrium. At the equilibrium price and quantity, profits are zero.

What most people don't understand is that this is capitalism. It is not monopoly capitalism, which dominates the economy today, but it is still capitalism.

Here is a quick blurb I cut from the internet:

"Economic profit is zero in the long run because of the entry of new firms, which drives down the market price. For an uncompetitive market, economic profit can be positive. Uncompetitive markets can earn positive profits due to barriers to entry, market power of the firms, and a general lack of competition."

Please, people, if you are going to teach others about a subject, either stick to what you know, or at least research the subject.

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Michael Hurst
Michael Hurst

Written by Michael Hurst

Economist and public policy analyst, cyclist and paddler, and incorrigible old coot.

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