Explain the outcome of the following features of a perfectly competitive market: (i) Freedom to the firms to enter the industry (ii) Freedom to the firms to leave the industry

Explain the outcome of the following features of a perfectly competiti

1.	Explain the outcome of the following features of a perfectly competitive market: (i) Freedom to the firms to enter the industry (ii) Freedom to the firms to leave the industry
Answer» SOLUTION :(i) Freedom to enter signifies that there are no barriers to the entry of new firms into industry.When the existing firms are earning super normal profits, the new firms, attracted by the prospects of PROFIT, enter the industry. This RAISES market supply which in turn leads to fall in market price and consequently profits. The entry continues till firms is earning just the normal profits. (II) Freedom to leave 'signifies that 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 markets price and consequently reduction in losses. The firms continue to leave till the losses are wiped out and each existing firms is earning just the normal profits.