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What has changed in the industry when moving from the short run to the long run? Explain why.

What has changed in the industry when moving from the short run to the long run? Explain why.

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Answer #1

In the short run firms are earning positive economic profit which encourages new firms to enter the market. This divides the existing demand into larger number of firms. As a result demand for each firm falls such that price charged is equal to average cost and all existing firms earn zero economic profit.

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