The reason why the entry and exit of firms in a purely competitive industry helps to improve resource allocation is because the losses result in exit and release resources to flow to markers where there are profits.
How can the purely competitve market be beneficial?
Purely competitive industries allow for easy entry and b which leads to many firms coming into the market.
As a result, there is too much supply which leads to losses when prices drop.
As the companies suffering losses leave the market, they then invest in other markets where there are profits thereby reallocating resources.
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