Final answer:
In pure competition, profit margins generally decrease over time as competitors offer similar products at lower prices. In pure competition, profit margins generally decrease due to competition from firms with better or cheaper products.
Step-by-step explanation:
In pure competition, where competitors offer similar products, over time, profit margins generally decrease. This is because in a perfectly competitive market, there are many buyers and sellers, and no single firm has control over the market price. As a result, firms are forced to compete on price, leading to lower profit margins.
For example, let's consider the market for smartphones. If there are many smartphone manufacturers offering similar products, consumers have many alternatives to choose from. As a result, companies would need to lower their prices and reduce profit margins in order to attract customers.
Overall, in pure competition, the presence of many competitors offering similar products leads to a decrease in profit margins over time.
In pure competition, profit margins generally decrease due to competition from firms with better or cheaper products. This competition reduces business profits over time, leading to zero economic profits in long-run equilibrium. While this is challenging for businesses and may affect workers, it benefits consumers and the nation's economy overall.
In pure competition, where competitors offer similar products, over time, profit margins generally decrease. This is due to the fact that competition from firms with better or cheaper products can reduce a business's profits, leading to a situation where they may be driven out of business. Continual competition ensures that prices and margins remain tight, as firms strive for efficiency and to stay appealing to consumers.
Furthermore, if a firm is earning positive economic profits, other firms will enter the market, which increases competition. This increased competition manifests as a decrease in demand for the original firm's product, lowering the firm's profit-maximizing price and level of output. Eventually, this leads to a long-run equilibrium where all firms in a perfectly competitive market will earn zero economic profits.
For businesses, this ensures a constant drive towards innovation and cost reduction. Employees may face income fluctuations or job losses if firms cannot stay competitive. However, consumers typically benefit from the resulting better or less expensive products, suggesting that the overall gains to a nation from competition outweigh the losses.