In a market that is characterized by free entry, profit serves the function of drawing new firms into the industry when it is greater than normal.

Question

Quizplus · Accepted Answer

In a market with free entry, potential profit is a signal for new firms to enter the industry and compete for a share of the profits. This mechanism helps to ensure that profits in the long run are not excessive and are kept at a normal level.

In a Market That Is Characterized by Free Entry, Profit