Perfect Competition and Supernormal Profits

Perfect Competition:
Perfect competition is a market structure where a large number of small firms sell homogenous products to a large number of buyers. In this market structure, no single firm can influence the market price as all firms are price takers. They have to accept the market price as given. The market is in equilibrium when the market price is equal to the equilibrium price where the quantity demanded is equal to the quantity supplied.

Supernormal Profits:
Supernormal profits are also known as economic profits. These are the profits earned by a firm when its total revenue is greater than the total cost, both implicit and explicit. In other words, when the firm earns more than the opportunity cost of production, it is said to be earning supernormal profits.

Long Run:
The long run is a period of time where all the factors of production are variable. In the long run, a firm can enter or exit the market. In perfect competition, there are no barriers to entry or exit. Therefore, in the long run, the number of firms in the market can change.

No Supernormal Profits in Perfect Competition in the Long Run:
In perfect competition, firms earn normal profits in the long run. Normal profits are the minimum profits required to keep a firm in business. It is the opportunity cost of production. In other words, normal profits are the profits that a firm would earn in its next best alternative. In the long run, if a firm is earning supernormal profits, then new firms will enter the market. This will increase the supply of the product and decrease the market price. As a result, the profits of existing firms will decrease. This process will continue until all firms are earning normal profits.

Conclusion:
In perfect competition, there will be no supernormal profits in the long run as new firms will enter the market and increase the supply of the product. This will lead to a decrease in the market price and the profits of existing firms will decrease. Eventually, all firms will earn normal profits.