3) Explain the importance of \"free entry\" in establishing the long run equilib
ID: 1218959 • Letter: 3
Question
3) Explain the importance of "free entry" in establishing the long run equilibrium price. 4) "In a world in which all markets were perfectly competitive, the ceaseless search for maximum profits will drive all prices down to the level of minimum average cost in the long run" Agree or disagree with this statement and explain your reasoning. 5) Do you think that the long run equilibrium price of oil as world demand expands will behave in a fashion similar to the long run equilibrium price of motorcycles as world demand for the expands? (assume in each case no further changes in known techniques of production) Explain your answer. Explain the importance of "free entry" in establishing the long run equilibrium price. 4) "In a world in which all markets were perfectly competitive, the ceaseless search for maximum profits will drive all prices down to the level of minimum average cost in the long run" Agree or disagree with this statement and explain your reasoning. 5) Do you think that the long run equilibrium price of oil as world demand expands will behave in a fashion similar to the long run equilibrium price of motorcycles as world demand for the expands? (assume in each case no further changes in known techniques of production) Explain your answer.Explanation / Answer
To establish long run equilibrium you would need competitive market, For competitive market to exist you would need free entry
4) True
Under these given conditions it is true, Because in competitive markets there is no other choice but to compete and drive down prices to the level of marginal cost
5) Long run demand for oil is a very different scenario, Oil is a product that would be consumed and nothing would be left out, Motorcycles on other hand could be recycled into new motorcycles. Oil reserves once depleted would not recharge. Oil is non-renewable resource which is finite.
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