Question 8
MediumOriginal questionRead the two statements and choose the correct option.
I. Under perfect competition with free entry and exit, the long-run equilibrium price equals minimum AC.
II. Under free entry and exit, firms earn supernormal profit in the long run.
Show the answer and explanation
CorrectNot quiteAnswer A
Correct answer: A
Explanation
I is true: entry pushes price down to minimum AC, exit pulls it up to it.
II is false: at price = minimum AC firms earn only normal profit.
- Concept
- Equilibrium with free entry and exit
- Typical timeTypical
- 70 s
- Your timeYours
- —
Practise this chapter →
Ten questions from Market Equilibrium & Price Controls, at your own pace.