Final answer:
Under perfect competition, the assumption of easy entry and exit leads to firms earning zero economic profits in the long run, as competition eliminates economic profits or losses.
Step-by-step explanation:
In perfect competition, the assumption of easy entry and exit implies that in the long run all firms in the industry will earn zero economic profits. This scenario occurs because the presence of positive economic profits attracts new firms to enter the market, leading to increased competition and thereby driving profits down. Conversely, if firms are suffering losses, the market will see firms exit until there are no more economic losses, again driving the market to a zero-profit equilibrium. This dynamic adjustment continues until no new firms are incentivized to enter the market, and no existing firms want to leave because economic profits have been normalized to zero.
The mention of monopolistic competition in the reference information is useful in contrasting it with perfect competition. While both market structures will see economic profits driven down to zero in the long run, perfect competition results in an efficient outcome with no excessive profits, while monopolistic competition allows for product differentiation and variety but may not achieve the same level of efficiency due to brand loyalty and product differentiation.