Paper 3 · Market Structures
In a perfectly competitive market, supernormal profits earned by firms in the short run attract new entrants, and competition drives price down in the long run until firms earn only ___ profit.
Model answer
normal profit
Also accepted: normal profits, normal
Explanation: Free entry in perfectly competitive markets means supernormal profit signals an opportunity to new firms; as they enter, supply rises and price falls until economic profit is competed away and only normal profit, covering opportunity cost, remains.
Derived from ZIMSEC Economics Paper 3, June 2004, Q4
