In a perfectly competitive market, how are short-run abnormal profits eliminated?

Show Answers

By firms exiting the market, which removes excess profitsBy new firms entering the market, which drives profits downThrough government intervention reducing abnormal gainsAs a result of increased promotional activities by firms

Explanation

In perfect competition, any short-run abnormal profits attract new firms to enter the market. This increased competition pushes prices down until only normal profits remain. Firms leaving the market reduce supply but do not eliminate profits in the short run, government intervention is not a factor, and advertising does not play a significant role in perfect competition.