"But if a firm has accounting profits, that means it's possible for another firm in the industry to price cut them. And in a perfectly competitive market they w

"But if a firm has accounting profits, that means it's possible for another firm in the industry to price cut them. And in a perfectly competitive market they will." It's possible, but - again presuming there is positive opportunity cost - as soon as the economic profit falls below zero it is a better idea for them to leave the industry than to lower their profit further. I don't undercut your prices because I think I'll be taking home less money. I undercut your prices because I think I'll capture your business and make more money overall. If that leaves you (or some other participant) without the ability to make sufficient profit to stick around, you won't.