Question

At what level of price do the firms in a perfectly competitive market supply when free entry and exit is allowed in the market? How is the equilibrium quantity determined in such a market?

Answer 1

Answer:

In the long run, due to the ‘free entry’ and ‘exit of firms’, all the firms earn zero ‘economic profit’ or ‘normal profit’.  

Explanation:

The equilibrium price will always be equal to the ‘minimum average cost’ in the ‘long run’. Due to ‘free entry’ and exit of the firms all the ‘firms in the market’ zero profits in this economy. They do not have any profits nor do they have any losses due to free exit and entry of the firms.