5 Explain how the long run differs from the short run in pur

5. Explain how the long run differs from the short run in pure competition.

Solution

Under pure competition, there are large number of buyers and sellers in the market who sell identical products and single firm does not have price control over the commodity. Firms are price takers rather than price makers.

In short run, firms may earn positive economic profit due to less number of firms in the market but in long run, new firms enter the market by seeing exisiting firms are earning positive profit and thus profit reduces to zero in the long run. Difference between long run and short run is that in long run, firms earn zero economic profit while in short run, firm may earn positive economic profit.