Q) Starting from a situation where firms in a perfectly competitive industry are making abnormal profits, explain how the industry achieves long-run equilibrium. ~ Answer, Students will need to use diagrams to explain how the entry of new firms results in the re-establishment of long run equilibrium. More firms in the industry, but each at min LRAC. Q4. Discuss the extent to which the theory of limit pricing provides a useful contribution to the theory of entry deterrence. I Answer: Students need to explain the basic issues of limit pricing as a barrier to entry and the strong assumptions that underpin this model. Good answers will examine whether limit pricing is credible using the perspective of game theory and strategic entry deterrence. ~