![]() ![]() On the graph, when firms enter the market it shifts the market supply curve to the right, decreasing the market price and MR=D=AR=P until firms break even. In the end, low barriers to entry (and exit) mean competitive markets earn zero economic profit in the long run. When firms are earning economic losses, firms exit the market (as resources will be more profitable elsewhere) in the long run, causing prices to rise until economic losses are zero. When firms enter the market, prices fall and economic profit goes to zero. That means, when firms are earning economic profits, competing firms seek that profit and enter the market in the long run. In perfectly competitive markets, barriers to entry are low. Barriers to entry can be high start up costs, customer loyalty, government regulation, etc. Barriers to entry: A barrier to entry is anything that makes it difficult for entrepreneurs to enter the market and compete.
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