A necessary condition for the operation of a perfectly competitive market is free entry and exit from the market.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, there should be no barriers to entry or exit, meaning that firms can freely enter and exit the market based on their profit opportunities. This condition ensures that any abnormal economic profits earned in the short run will attract new entrants to the market, leading to increased competition and elimination of these profits over the long run. Similarly, if firms face losses in the short run, they can exit the market, leading to a reduction in supply and eventually the normalization of prices. Therefore, free entry and exit is a necessary condition for perfect competition.

A Necessary Condition for the Operation of a Perfectly Competitive