Answer
Agree to an extent, on the one hand firms should not invest too much of their profits to research and development, especially if their in the purely competitive industry, as super normal profits can only be earned in the short run. However, there is an opportunity for firms to undercut other firms if they manage to launch a successful product, and would thus be the leading firm in bringing the market into a monopolistic competitive or even oligopolistic industry.
Work Step by Step
Although firms in purely competitive firms earn normal profit in the long run, this does not mean that they do not earn profit, as normal profit refers to economic profit, and not accounting profit which omits opportunity cost and is the amount that they actually earn and able to spend. Thus, contrary to what normal profit implies, this does not mean that the firms would not be able to invest in research and development.
The transformation of an industry from a purely competitive industry into a monopolistic industry is also plausible and extremely likely, as long as firms product innovate to an extent that some barriers of entry exist, and to ensure that they are not the displaced companies that would lose all market power when this shift occurs, product innovation is absolutely necessary, but to a lesser extent than in other industries such as oligopolies.
