This question asks you to analyze how the ideal conditions of a purely (perfectly) competitive industry influence the motives and decisions-of its participating firms. In perfect competition, the ideal conditions cause firms to experience differences in their total profit levels in the short run and the long run.

1. 1.Make a distinction between accounting profit and economic profit. Then explain why a purely competitive firm who earns a Zero Total Economic Profit is actually earning a Normal Profit, as viewed by economists.
2. In the short run, explain why it is possible for a perfectly competitive firm to earn an above-normal total profit.
3. In the long run, explain how the ideal conditions in perfect competition will cause all firms to earn a Zero Economic Profit (Normal Total Profit) in the long-run.