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Explain the implication of the following iin a perfectly compeitive market: (a) Large number of buyers (b) Freedom of entry and exits to firms.

Answer» <html><body><p></p>Solution :a) Implication of 'very large no. of buyers and sellers' is that the no. of sellers is so large that the share of each seller is insignificant in the total supply. Hence, an individual seller cannot influence the <a href="https://interviewquestions.tuteehub.com/tag/market-25464" style="font-weight:bold;" target="_blank" title="Click to know more about MARKET">MARKET</a> price. Similarly, a single buyer's share in total purchase is so insignificant because of their large numbers that an individual buyer cannot influence the market price.b)Implication of ' freedom of entry and exit' : 'Freedom of entry' signifies that there are no barriers to the entry of new firms into industry. When the existing firms are earning abnormal profits, the new firms, attracted by the <a href="https://interviewquestions.tuteehub.com/tag/prospects-1170612" style="font-weight:bold;" target="_blank" title="Click to know more about PROSPECTS">PROSPECTS</a> of <a href="https://interviewquestions.tuteehub.com/tag/profit-1168589" style="font-weight:bold;" target="_blank" title="Click to know more about PROFIT">PROFIT</a>, enter the industry. This raises market supply, which in turn, leads to fall in market price and consequently profits. Te entry continues <a href="https://interviewquestions.tuteehub.com/tag/till-709848" style="font-weight:bold;" target="_blank" title="Click to know more about TILL">TILL</a> each firm is earning just the normal profits.'Freedom to exit' signifies that there are no barriers which restrict the existing firms from leaving the industry. The firms try to leave when they are facing losses. As the firms start leaving, market supply falls, leading to rise in market price and consequently reduction in losses. The firms continue to leave till the losses are <a href="https://interviewquestions.tuteehub.com/tag/wiped-7723135" style="font-weight:bold;" target="_blank" title="Click to know more about WIPED">WIPED</a> out and each existing firm is earning just the normal profits.</body></html>


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