The graph below shows a perfectly competitive firm in short-run equilibrium, where the firm has chosen the output level which maximizes profit. Think about the level of profits being earned here and what will happen over time. In the long run:
Price (P)
36
MC
32 28
24
20
ArcD
16
12
Avc
8
4
6 12 18 24 30 36 42 48 54 Quantity (Q)
The market price will decrease until economic profit is zero.
The market price will increase, causing economic profits to increase.
Demand will increase, causing economic profits to increase.