Free entry and exit means that in the long run, price will:
A)trend upward.
B)trend downward.
C)equal average cost.
D)allow all firms to earn economic profit.

Question

Quizplus · Accepted Answer

In a perfectly competitive market with free entry and exit, firms will enter or exit as necessary until all firms are operating at the minimum point of their average cost curve. Thus, in the long run, price will equal average cost. This is known as the long run equilibrium in a perfectly competitive market. Therefore, the correct answer is option C: equal average cost.

Free Entry and Exit Means That in the Long Run