Suppose the price at which equilibrium Is attained Is above the minimum average cost of the firms constituting the market. Now If we allow for free entry and exit of firms, how will the market price adjust to it?

Suppose the price at which equilibrium Is attained Is above the minimu

1.	Suppose the price at which equilibrium Is attained Is above the minimum average cost of the firms constituting the market. Now If we allow for free entry and exit of firms, how will the market price adjust to it?
Answer» <html><body><p></p>Solution :If the equilibrium price is above the minimum average <a href="https://interviewquestions.tuteehub.com/tag/cost-25707" style="font-weight:bold;" target="_blank" title="Click to know more about COST">COST</a> of the firms, it <a href="https://interviewquestions.tuteehub.com/tag/indicates-1041501" style="font-weight:bold;" target="_blank" title="Click to know more about INDICATES">INDICATES</a> that the existing firms have an opportunity to eam abnormal profits. With freedom of entry and exit of firms, new firms will <a href="https://interviewquestions.tuteehub.com/tag/enter-446119" style="font-weight:bold;" target="_blank" title="Click to know more about ENTER">ENTER</a> the <a href="https://interviewquestions.tuteehub.com/tag/industry-1043031" style="font-weight:bold;" target="_blank" title="Click to know more about INDUSTRY">INDUSTRY</a>. whieh will increase the market supply and will shift the supply curve towards right. This rise in supply will lead to fall in equilibrium price till it becomes equal to the minimum average cost.</body></html>