Final answer:
When new firms enter a perfectly competitive market, the economic profits of existing firms are reduced to zero in long-run equilibrium. Entry of new firms increases supply, lowering prices until economic profits vanish but allowing firms to still earn normal profits.
Step-by-step explanation:
When new firms enter a perfectly competitive market, the typical outcome is that the economic profits of existing firms will eventually be driven down to zero. The reason for this is that in the long-run equilibrium, the presence of positive economic profits attracts new firms into the market, increasing supply and thus lowering the market price.
Option c) in the question, which mentions existing firms may see their costs rise as more firms compete for limited resources, could occur in the short run, but it is not the typical long-run outcome because in a perfectly competitive market, resources are assumed to be sufficiently mobile and not a constraint. Indeed, as the supply curve shifts right due to new entrants, the increased competition forces the price down, which in turn decreases the economic profits until they become zero. This is when no new firms want to enter and existing firms do not wish to exit the market.
It is important to note that zero economic profit does not mean the firms are not making any profit, but rather, it means that their accounting profits are equivalent to what the resources could earn in the next best alternative, which is known as the normal profit.