Explain the implication of free entry and free exit of a firm in the perfect competition market.
Answers
: The implication of free entry and free exit of a firm in the perfect competition market is that in this market structure no company earn an unusual profit. Each company just earns a normal profit.
Answer:
In economics, free entry is a condition in which firms can freely enter the market for an economic good by establishing production and beginning to sell the product. The assumption of free entry impies that if there are firms earning excessively high profits in a given industry, new firms that also seek a high profit are likely to start to produce or change into a production of the same good to join the market. In such a case there are no barriers preventing a start-up firm from competing. Where an opportunity of a profit arises we assume that there will also be firms entering the market for the certain good and compete for it. In most markets this condition is present only in the long run.