The freedom of entry and exit is key to pressuring economic profit to zero under

Question

Quizplus · Accepted Answer

In both perfect competition and monopolistic competition, the freedom of entry and exit of firms in the market ensures that in the long run, economic profits are driven to zero. This is because if firms are making economic profits, new firms will enter the market, increasing supply and driving prices down until profits are eliminated. Conversely, if firms are making losses, some will exit the market, reducing supply and increasing prices until losses are eliminated. This mechanism does not work in the same way in oligopolies and monopolies, where barriers to entry prevent new firms from entering and competing away profits.

The Freedom of Entry and Exit Is Key to Pressuring