Question

In 2015, poultry farmers were able to sell cage-free eggs for a price that more than offset the higher

costs of raising cage-free chickens. By 2019, most of that higher return had been wiped out by the
entry of additional farmers into the cage-free egg market, which caused the price of those eggs to
decline. This example indicates that in a competitive market,
O earning an economic profit in the long run is extremely difficult.
O it is impossible to earn an economic profit in either the short run or the long run.
earning an economic profit in the long run is extremely easy.
economic profits are only earned in the long run.

Answer 1

In a perfectly competitive market, earning long-run economic profits is difficult as new entrants increase supply, reduce prices, and drive profits down to zero, demonstrating why firms only make normal profits in long-run equilibrium.

Step-by-step explanation:

The example of poultry farmers and the competitive market for cage-free eggs demonstrates that in a perfectly competitive market, earning an economic profit in the long run is extremely difficult. As the market adjusts, new entrants drive prices down, which erodes initial economic profits. This is because, in the long run, the entry of additional firms into a market with positive economic profits leads to increased supply, reducing prices and profits until they reach a long-run equilibrium where economic profits are zero. Hence, firms only make normal profits, which is the return necessary to keep a firm in business. This concept aligns with the basic principles of supply and demand and the behavior of firms in perfectly competitive markets.