What is the incentive of a perfect competition?

Question

Why do sellers stay in this type of market structure when in the long run, they get zero profit?

What do they get/ what's their incentive for staying in a perfectly competitive market if there is zero profit in the long run anyway?

Answer 1

Because short run profits can be substantial.  Also, remember, zero profit means zero economic profit, not zero accounting profit.  If an accountant can make $50,000 as an accountant and is said to be making a normal profit as a baker, his accounting profits are $50,000 as a baker.  

Answer 2

Zero profit in economic terms means that they are making as much money as they could if they were doing the next most profitable thing they could do instead.  

So, let's say Madonna is making 0 profit.  If she quit performing, she would have a tv show instead.  If she were truly making 0 economic profit, the money she makes from both of these would be exactly the same.  

This is why people stay in a market making 0 economic profit.  Presumably, switching back and forth takes effort, but they make the same amount of money at both.  

Answer 3

Zero profit doesn't actually mean they make zero, it means they make enough to cover the cost of capital and that's it.  So, it's basically like holding a Treasury bond.

However, in reality perfect competition involves movement in the competitors.  Some are more efficient and make some profit, others lose money.  The losers are forced out, new competitors come in, old competitors learn to be as efficient as the guy who's making money, etc.

There are exit barriers too.  Sometimes not making money is cheaper than what you would lose if you shut down.

Answer 4

Well perfect competition is an equilibrium where a large number of small firms decide in a simulteneous cournot's game by choosing quantities at present demand level which incidentally gives zero profits... the stability or strategic outcomes or asymetric info are diffrent issues but this said firms are thinking the other firm to set qauntity i.e. acting foolish but what they r doing is actually producing output why may be to only stay in the market for future gains or may be to engage in the trade or may be the rate of returns that is normal is so attractive that firms cannot deviate, there might not be any other oppurtunity to create value or simply because they are too small......................................

the bottom line they want to optimise the dual of min losses and max profits their activity they select the rule of market lets them choose qty only, it is assuymed produce is homogeneous they can not choose price .............. so they are price takers as long as competition exists each firm gets zero profit but that is o.k. since managerial skills and growth are well taken care of in normal rate of return that they might stay in market is more important theoritically and markets still clear optimizing welfare of all  .........