If restrictions on entry and exit of firms are introduced in free markets,________.
A) all existing firms will earn equal profits in the long run
B) existing firms will incur equal losses in the long run
C) the market will allocate resources efficiently
D) resources in the market will not allocated efficiently

Question

Quizplus · Accepted Answer

Restrictions on entry and exit prevent new firms from entering the market and existing firms from exiting the market. This can lead to inefficient allocation of resources, as firms that are no longer competitive may continue to operate and use resources that could be better used elsewhere. Additionally, existing firms may not have an incentive to innovate or improve their products since they face less competition. Therefore, the best choice is option D, which states that resources in the market will not be allocated efficiently.

If Restrictions on Entry and Exit of Firms Are Introduced