The basic model of pure competition reviewed in this chapter finds that in the long run all firms in a purely competitive industry will earn normal profits. if all firms only earn a normal profit in the long run, firms will develop new products or lower-cost production methods because they can eliminate competition. improve their management and earn an economic profit in the long run. innovate and possibly earn a normal profit in the short run. innovate and possibly earn an economic profit in the short run.

Self-interest achieve society’s economic goals because producers know which goods consumers want the most. as consumers and producers exercise their freedom to act in their own self-interest, markets will produce the desired goods at the lowest possible cost. consumers and producers both operate based on society’s economic goals. consumers know which goods can be produced at the lowest cost. there is a wide variety of desired goods and services in a market system because producers determine what to produce. consumers change their minds frequently. there is always a need to produce something new and improved. individual wants are diverse. what is produced is ultimately determined by consumers, because if the goods offered are not what consumers want, consumers will not buy them. producers, because they are driven by profits. producers, because they determine what to produce. consumers, because they participate in marketing surveys.