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प्रश्न
Explain the implication of ‘freedom of entry and exit to the firms’ under perfect competition.
Briefly discuss the 'implication of 'freedom of entry and exit' under perfect competition.
उत्तर
The basic implication of the feature of freedom of entry and exit for firms under perfect competition is that all firms in the market earn zero economic profit in the long run. Each individual firm is able to operate at the point where the minimum of the long-run average cost curve (LAC) is tangent to the price line. This implies that the firm neither earns supernormal profits nor suffers abnormal losses.
If the firms are earning supernormal profits (that is, the price is greater than the minimum of LAC, then it attracts new firms to the market. Consequently, the total output in the industry increases and the price falls. The price continues to fall until it reaches the minimum of the LAC curve and the super-normal profits are wiped out.
As against this, if the firms are suffering abnormal losses (that is, the price is less than the minimum of LAC, then it leads some of the firms to exit the market. Consequently, the total output in the industry falls and the price rises. The price continues to rise until it reaches the minimum of the LAC curve and the abnormal losses are wiped out.
Thus, the freedom of entry and exit of firms under perfect competition implies that all firms earn only normal profits in the long run.
संबंधित प्रश्न
Explain ‘large number of buyers and sellers' features of a perfectly competitive market.
What is a price taker firm?
Explain Perfect knowledge about the markets feature of perfect competition.
Under what market condition does Average Revenue always equal Marginal Revenue? Explain.
Under which market form is a firm a price taker?
Why can a firm not earn abnormal profits under perfect competition in the long run? Explain.
In which market form can a firm not influence the price of the product?
Explain how price is determined in a perfectly competitive market with fixed number of firms.
What are the characteristics of a perfectly competitive market?
How is the optimal amount of labour determined in a perfectly competitive market?
Show with the help of a diagram, how a perfectly competitive firm earns a normal profit in short-run equilibrium.
Answer the following question.
Is a firm under perfect competition a price taker, or a price maker? Justify your answer.
Identify the market form and explain the corresponding feature, as given in the following statement:
"The commodity in this market has attributes which are identical for sellers and buyers."
Choose the correct answer from given options
A firm is not a price maker under
Under Perfect Competition, a firm will enjoy normal profit in the long run even if it enjoys supernormal profit in the short run. Explain.
Explain the short-run equilibrium of a firm facing losses under Perfect Competition.
How is Total Revenue under perfect competition different from Total Revenue under imperfect competition? Give two points to show the difference.
A perfectly competitive firm always enjoys normal profit in the long run, irrespective of the situation it faces in the short run. Discuss the statement in brief.
A car company ‘W’ hired an international cricket player for its endorsement in India, while two other car companies’ ‘Y’ and ‘R’ hired two famous Bollywood film stars for this purpose. Explain the features of the competitive market indicated above.
