Final answer:
In a market with few barriers to entry, firms may still have positive economic profits due to product differentiation, brand loyalty, or technological advantages. These factors can help maintain economic profits, even as new firms enter the market. However, in the long run, market equilibrium is typically reached with economic profits driven down to zero.
Step-by-step explanation:
If a market has few barriers to entry and many firms, firms may still maintain positive economic profits due to several factors. For instance, they may have product differentiation, brand loyalty, or technological advantages that give them an edge over new entrants.
Additionally, they might be operating at a more efficient scale, which allows them to maintain lower costs and higher profits, even when competition exists in the market.
Over time, positive economic profits tend to attract new firms into the market. However, as these new competitors enter, the original firm's perceived demand curve shifts to the left, indicating that each firm's share of the market demand is decreasing.
As a result, original firms may need to lower their prices to P₁ to stay competitive. Nonetheless, if they have strong brand loyalty or are innovating, they could maintain some level of positive economic profit in the short to medium term, before the market reaches a long-run equilibrium where economic profits are zero.