Economics Perfect Competition Questions
The role of entry and exit in a perfectly competitive market is to ensure that the market remains competitive and efficient.
Entry refers to new firms entering the market, while exit refers to existing firms leaving the market.
When there are profits to be made in a perfectly competitive market, entry occurs as new firms are attracted to the industry. This increases the number of firms in the market, leading to increased competition.
On the other hand, when firms in a perfectly competitive market are experiencing losses or are unable to cover their costs, exit occurs. This reduces the number of firms in the market, which decreases competition.
The process of entry and exit helps to maintain a balance between supply and demand in the market. It ensures that prices are determined by market forces and that resources are allocated efficiently.