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JAMB Economics 2008 Question 24

Question 24

Market Structures

The characteristic of entry and exit ensures that firms

  1. A.earn excess profit
  2. B.earn normal profit
  3. C.break-even
  4. D.expand their operations
Show the answer and explanation

Answer: B (earn normal profit)

Explanation

Free entry competes away supernormal profit and free exit removes losses, so in the long run firms earn only normal profit.