c) Long-run

• state what type of profit firms in perfect competition make in the short-run

• state why

• normal

• no barriers to entry

• firms easily enter and exit the market

• supply fluctuates

• explain why firms in perfect competition making supernormal profit in the short-run make normal profit in the long-run

• supernormal profit → attracts new firms

• supply increases

• price decreases

• AR = ATC

• show how market supply affects firm pricing in perfect competition making supernormal profit in the short-run on a graph

• explain why firms in perfect competition making a loss in the short-run make normal profit in the long-run

• loss → firms leave market

• supply decreases

• price increases

• AR = ATC

• show how market supply affects firm pricing in perfect competition making a loss in the short-run on a graph