machines, buildings, managerial personnel. This are the factor inputs that cannot be varied during the short run. In the short run, it is possible for firms in a perfectly competitive industry to earn profits or even operate at a loss as supply and demand for the entire industries output changes. When a good has many acceptable substitutes, the demand is price sensitive which is another way of saying that the demand is elastic.įor an industry, the short run is the period in which firms are unable to enter and exit the market because they are only able to vary their labor and not their capital because the capital is fixed. None is big enough or monopolistic enough to manage it. Lots of producers are competing in the same areas, meaning that no producer or any business has price power.All producers make things that are identical and all of them have input that area the same.Business can enter and exit the market-assumptions that business don’t have to beg venture capitalist for startup funds.Consumers and producers have perfect knowledge -they all know all there is to know about the product and market and they make rational decisions.What constitutes the aforementioned level playing field ![]() It is made up idea that business will behave in a certain way if we stipulate that all business in a particular industry are playing on a level field. Perfect competition is the kind of hypothetical situation that economists love to talk about even though it exists in the same fairy tale realm. Short run -is the period of time which it is impractical to change the levels of employment levels of some inputs so as to immediately increase the output
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