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Why does supernormal profit attract entry of new firms?

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Why does supernormal profit attract entry of new firms?
posted Jul 11, 2017 by Chetan Hindu

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Supernormal profit attracts entry of new firms because knowledge is everywhere and also the main aim of any producers is to make profit.Let say for example that there is a market where one producer make a superprofit otherwise said his revenue is greater than his cost of production -in other words after selling his products- his revenue allow him to pay both fixed and variable costs and save an extra money.

This situation will definitely compels another producer who is interested by the same market to enter in (because of the existence of the information which is free to obtain and available to anyone)and also try to make his own super-normal profit. and the information will therefore flow from on producer to another and so on.Remember the competition market states that there are no barriers to enter and exit from the market, outputs are homogeneous, no discrimination between buyers and sellers.The competition market is only a heoretical Ideal! the reality is completely different true

answer Jul 12, 2017 by Purabi Sarkar