Final answer:
Free entry means no legal barriers are preventing a firm from entering an industry, key in perfectly competitive markets for regulating prices and profits in the long run through the process of entry and exit. Hence, the correct answer is option b.
Step-by-step explanation:
Free entry, in the context of economics and market structures, refers to the condition where no legal barriers prevent a firm from entering an industry. It does not mean that the government pays for entry costs, that a firm's marginal cost is zero, or that there are no fixed costs in the short run. Free entry is a characteristic of perfectly competitive markets where firms can enter and exit the market based on economic conditions and profit opportunities.
In a perfectly competitive market, the process of entry and exit leads to zero profit in the long run. When firms enter the market in response to profits, the increased supply leads to lower market prices. Conversely, when firms exit the market due to losses, the reduced supply increases market prices. Eventually, the market adjusts so that the remaining firms earn normal profits, where prices cover average total costs and no economic profit is made above this normal return.
The concept of zero profit in the long run is crucial because it shows the self-regulating nature of perfectly competitive markets and how entry and exit decisions affect the price level and profitability of firms over time.