What are the implications of abnormal losses in the short run period when there is a freedom of entry and exit?
ANSWER ASAP, EXAM TOMORROW
Dear student
Under perfect Compiititio there is freedom of entry & exit to Industry.
In short run firm may operate under 3 conditions - i.e. normal profits, extra normal profits and abnormal losses.
In case of extra normal losses or abnormal losses, some of the existing firms will leave the industry. Market supply will decrease. Hence, market price will increase and extra normal losses will be wiped out.
Regards
Under perfect Compiititio there is freedom of entry & exit to Industry.
In short run firm may operate under 3 conditions - i.e. normal profits, extra normal profits and abnormal losses.
In case of extra normal losses or abnormal losses, some of the existing firms will leave the industry. Market supply will decrease. Hence, market price will increase and extra normal losses will be wiped out.
Regards