Question

Freedom of free entry and exit for firms is only possible

• A. In short-run
• B. In long-run
• C. Both (A) and (B)
• D. Neither (A) nor (B)

Hint:

In the long-run, firms can freely enter and exit the market, while in the short-run, they may face limitations due to fixed costs or barriers to entry.

Answer 1

The Correct Option is B

Step 1: Understanding Entry and Exit in the Market:
In economics, the concept of free entry and exit refers to the ability of firms to enter or leave a market without significant barriers. The freedom for firms to enter and exit a market typically depends on the time frame.
Step 2: Analyzing the Short-Run vs Long-Run:
- In the short-run, firms face fixed costs, and the number of firms in the market is limited. Barriers to entry may exist, such as capital constraints or regulatory issues, which make it difficult for firms to freely enter or exit.
- In the long-run, all costs become variable, and firms can freely enter or exit the market without constraints, as there are no fixed barriers to entry.
Step 3: Conclusion and Answer:
The correct answer is (B) because free entry and exit for firms is only fully possible in the long-run, when all factors of production are variable.