Editing Perfect competition (section)

===Profit===
In contrast to a [[monopoly]] or [[oligopoly]], in perfect competition it is impossible for a firm to earn [[economic profit]] in the long run, which is to say that a firm cannot make any more money than is necessary to cover its economic costs. In order not to misinterpret this zero-long-run-profits thesis, it must be remembered that the term 'profit' is used in different ways: 
*Neoclassical theory defines profit as what is left of revenue after '''all''' costs have been subtracted; including normal interest on capital plus the normal excess over it required to cover risk, and normal salary for managerial activity. This means that profit is calculated after the actors are compensated for their opportunity costs.<ref name="pc">{{cite web|title=Microeconomics – Zero Profit Equilibrium |url=http://principles-of-economics-and-business.blogspot.com/2014/11/microeconomics-zero-profit-equilibrium.html|access-date=2014-12-05}}</ref>
*Classical economists on the contrary define profit as what is left after subtracting costs except interest and risk coverage. Thus, the classical approach does not account for opportunity costs.<ref name="pc" />
Thus, if one leaves aside risk coverage for simplicity, the neoclassical zero-long-run-profit thesis would be re-expressed in classical parlance as profits coinciding with interest in the long period (i.e. the [[rate of profit]] tending to coincide with the rate of interest). Profits in the classical meaning do not necessarily disappear in the long period but tend to [[normal profit]]. 
With this terminology, if a firm is earning abnormal profit in the short term, this will act as a trigger for other firms to enter the market. As other firms enter the market, the market supply curve will shift out, causing prices to fall. Existing firms will react to this lower price by adjusting their capital stock downward.<ref name="Frank 2008 351">Frank (2008) 351.</ref> This adjustment will cause their marginal cost to shift to the left causing the market supply curve to shift inward.<ref name="Frank 2008 351"/> However, the net effect of entry by new firms and adjustment by existing firms will be to shift the supply curve outward.<ref name="Frank 2008 351"/> The market price will be driven down until all firms are earning normal profit only.<ref>Profit equals (P − ATC) × Q.</ref>

It is important to note that perfect competition is a sufficient condition for allocative and productive efficiency, but it is not a necessary condition. Laboratory experiments in which participants have significant price setting power and little or no information about their counterparts consistently produce efficient results given the proper trading institutions.<ref>Smith (1987) 245.</ref>