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At what leverl of price fo the firms in ...

At what leverl of price fo the firms in a perfectly competitive market supply when free entry and exit is allowed in the market ? How is equilibrium quantity determined in such a market ?

Text Solution

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Free entry and exit of firam takes place in the long run. Equlibrium price will always be equal to minimum AC.

In equilbrium (Point B), the quantity supplied will be determined by the market demand at the price so that they are equal.
Thus, at P = MC = AC, each firm supplies OQ level of output.
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