When free entry and free exit exist in a market, then in the long run, a seller's demand curve will:
A)barely touch its average cost curve.
B)be below its average cost curve.
C)be above its average cost curve.
D)cross its average cost curve.

Question

Quizplus · Accepted Answer

In a market with free entry and exit, firms will enter the market if they can make a profit and exit if they are making losses. In the long run, this process leads to a situation where firms make zero economic profit, meaning their price (or demand curve) will just cover their average costs, leading to the demand curve barely touching the average cost curve at the point of long-run equilibrium.

When Free Entry and Free Exit Exist in a Market