Homework SourseIf all firms will only earn a normal profit in the long run
If all firms will only earn a normal profit in the long run, why would any firms bother to develop new products or lower-cost production methods?
If all firms will only earn a normal profit in the long run, why would any firms bother to develop new products or lower-cost production methods?
Solution
If the firms innovate a new products there should be an increase in the demand for the commodity and by doing this the firms can earn positive economic profit in the long run. The lower cost production methods enables the firm to reduce the average total cost. So if the average cost is less than the price the firm earns a positive economic profit. So they can earn profits in the short run.
