Question

Explain how the long run differs from the short run in pure competition. Provide an example of a short-run adjustment and an example of a long-run adjustment a firm might consider when costs start to increase.

Your answer to the discussion question should be 150-200 words.

Answer 1

Short run and long run in pure Competition-

In the short run the equipments and plant are fixed, which means they cannot be changed.

In the long run the equipments and plant are not fixed and can be changed.

In the short run a firm may incur super normal profits or losses.

In the long run new firms are attracted if the existing firms are making super normal profits as there are no Barriers on entry and exit and there is perfect knowledge and the entry of these new firms will cause the supply curve to the right which will drop the priced until all supernormal profits are exhausted. And due to losses firms will exit the market as there are no Barriers on entry and exit and this will shift the supply curve to the left which will raise the prices and the existing firms will make normal profits.