Question

Suppose independent truckers operate in a perfectly competitive constant cost industry. If these firms are earning positive economic profits, what happens in the long run to the following: The price of trucking services

Answer 1

The price of trucking services would fall until equilibrium prices are reached. Only normal profit would be earned in the long run

Step-by-step explanation:

A perfect competition is characterized by many buyers and sellers of homogenous goods and services. Market prices are set by the forces of demand and supply. There are no barriers to entry or exit of firms into the industry.

In the long run, firms earn zero economic profit. If in the short run firms are earning economic profit, in the long run firms would enter into the industry. This would drive economic profit to zero.

Also, if in the short run, firms are earning economic loss, in the long run, firms would exit the industry until economic profit falls to zero.