Microeconomics Learning Journal 6.docx - 6 LEARNING JOURNAL...

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6. LEARNING JOURNAL: Q: Why will profits for firms in a perfectly competitive industry tend to vanish in the long run? A: In a perfectly competitive industry, firms will make profits in the short run. This is true. When a firm introduces a new product into the market, people will show interest to buy the product and use it. And when they found the product is good and user friendly they will suggest it to their relatives, their friends etc. This will increase the demand for the product in the market increasing the marginal costs too. With every new product sold, the marginal costs increase in the beginning. But after that they start to decrease, making the profit decrease. Because of the demand in the initial level, firms try to increase their production until they have high demand in the market. During this time, they have good profits with the good sales of their products. But with time, the demand decreases or may be a new product countered this product might happen. And all their sales will be reduced and their
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