Suppose that the price of corn, a crop produced in a perfectly (or purely) competitive industry, increased 208% last year as demand for corn based ethanol fuel increased. What do you expect to happen in the long run for the corn industry given this recent success?

The price per bushel of corn will continue to increase, yielding higher profits.
Thus more firms will enter the market indefinitely.
Profits will become negative due to over farming, which will result in the corn farming industry going under.
Profits will be equal to zero. None of the above.

Since we are dealing with a perfectly competitive market, which has no barriers to entry and exit, profits are only incurred in the short run not in the long run.

This occurs because super normal profits which are made in the short run will attract a lot of competitor firms, and since the customers have "perfect information",they will not mind switching from seller to seller, trying to beat prices down and get a better bargain. Hence, this presence of competitors will cause the price of corn to fall in the long run.

Thus, the high inflow of competition that will happen to the corn industry will cause the profits to be equal to zero in the long run.

ewomazinoade ewomazinoade · Answer 2 · 2021-11-11T11:50:59+01:00

I expect that in the long run, profits would be equal to zero.

A perfectly competitive industry is an industry that sells identical goods and services. There are many buyers and sellers in the market. Price is set by market forces.

In a perfectly competitive industry, there is perfect entry and exit of firms in the industry. In the short run, when there is a profit, in the long run, new firms would enter into the industry, this would drive profits to zero. On the other hand, if a firm earn negative profits, firms would leave the industry in the long run and this would raise profits to zero.

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