Question

. What are the implications of the assumption of easy entry and exit for the results of perfect competition in the long-run? (4)

Answer 1

Easy entry and Easy exit in the perfect market condition allows the market and the frim to stay in the break-even point and long-run equilibrium. For example, if the firms are facing a loss in a perfect market condition the inefficient firms who are facing more loss will exit the market, this will increase the price and decrease the supply bringing the equilibrium i.e. no profit no loss back in the market.

Similarly, if the firms in the market are making the supernormal profit it will attract new firms and they will continue to enter the market to the point where the equilibrium i.e. the breakeven point of no profit and no loss is reached.

Easy entry and easy exit maintain the long run equilibrium in the perfect market condition.