When new firms enter the industry in response to increased industry profits it is called entry. If a business is making a profit in the short run, it has an incentive to expand existing factories or to build new ones. In a competitive market, profits are a red cape that incites businesses to charge. Therefore, the distinction between the short run and the long run is more technical: in the short run, firms cannot change the usage of fixed inputs, while in the long run, the firm can adjust all factors of production. It varies according to the specific business. It is impossible to precisely define the line between the short run and the long run with a stopwatch, or even with a calendar. Discuss the long-run adjustment process.
Explain how entry and exit lead to zero profits in the long run.Learning Objectives By the end of this section, you will be able to:
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