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Quantitative Finance · Glossary

What is Free-entry equilibrium?

Definition 30.4 The Desk and the Firm · Chapter 30 — Competition and the Future

A free-entry equilibrium is the number of firms at which each firm in a business covers its fixed cost and one more entrant would not: π(n)≥F>π(n+1)\pi(n)\ge F>\pi(n+1), where π(n)\pi(n) is each firm’s operating profit when nn firms compete and FF is the fixed cost of being in the business.

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