Long-run adjustments in purely competitive markets primarily take the form of
A) variations in the cost curves of different firms in the market.
B) entry or exit of firms in the market.
C) evolution of the market from a constant-cost to an increasing-cost industry.
D) product differentiation.

Question

Quizplus · Accepted Answer

In the long run, firms can enter or exit the market depending on profitability. If firms are earning economic profits, new firms will enter, increasing supply and driving prices down until profits are zero. On the other hand, if firms are experiencing losses, firms will exit, decreasing supply and driving prices up until firms are no longer experiencing losses. This process of entry and exit continues until all firms earn zero economic profits, which is the long-run equilibrium in a purely competitive market. The other options may be factors affecting the short-run cost structure of firms, but they do not necessarily drive long-run adjustments in a purely competitive market.

Long-Run Adjustments in Purely Competitive Markets Primarily Take the Form