Which market structures have economic profits that are competed away by new firms in the long run?

The answer is centered on the concepts of monopolistic competition and pure competition, where economic profits tend to attract new firms into the market in the long run.

In monopolistic competition, numerous firms offer products that are differentiated but still similar enough that they compete for the same market. When existing firms in this structure earn economic profits, it signals to other potential competitors that there is an opportunity for profit. As new firms enter the market, this influx of competition leads to a decrease in market prices and profits, eventually eroding the economic profits of all firms to a more typical long-run equilibrium where firms earn normal profits.

Pure competition operates similarly, but with the additional characteristic that all firms sell identical products. If firms in a purely competitive market are experiencing economic profits, new firms will enter the market drawn by the potential for profits, which also drives prices down until profits reach zero in the long run.

In contrast, the other choices involve market structures where firms can sustain profits over the long run, such as oligopoly and monopoly, due to high barriers to entry. These barriers protect existing firms from competition, allowing them to maintain economic profits.