Long-run adjustments in purely competitive markets primarily take the form of
A)variations in the cost curves of different firms in the market.
B)entry or exit of firms in the market.
C)evolution of the market from a constant-cost to an increasing-cost industry.
D)product differentiation.

Question

Quizplus · Accepted Answer

In purely competitive markets, long-run adjustments occur through the entry or exit of firms. This process is driven by economic profits or losses. If firms in the market are making economic profits, new firms are incentivized to enter the market, increasing supply and driving down prices and profits until only normal profits are made. Conversely, if firms are experiencing losses, some will exit the market, reducing supply, which can increase prices and reduce losses for the remaining firms until only normal profits are achieved. This mechanism ensures that in the long run, firms in purely competitive markets earn only normal profits.

Long-Run Adjustments in Purely Competitive Markets Primarily Take the Form