If a firm is consistently earning zero economic profit in a competitive market, what underlying market condition is likely causing this outcome?

When a firm is consistently earning zero economic profit in a competitive market, it means that the firm is covering all its costs, including both explicit costs, like wages and rent, and implicit costs, such as the opportunity cost of the owner's time and resources. This situation is often referred to as "normal profit," which is the minimum profit necessary for a company to stay in business. In a competitive market, many firms are offering similar products, leading to price competition that drives prices down to the point where firms can only earn normal profits. For example, imagine a local coffee shop that charges the same price as other shops in the area; if it covers all its costs but does not make extra profit, it is in a state of zero economic profit. This balance between supply and demand ensures that if firms earn more than normal profit, new competitors will enter the market, driving profits back down.