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Why will losses for firms in a perfectly competitive industry tend to vanish in the long run?
When firms in an industry are able to charge price lesser than the average total cost then itmeans that they are making losses, now this loss will push firms to go away from this industry toany other profit-making industry and thus the firms will exit the market. Now when firms exit thensupply will fall which will result in increase in equilibrium or market price and the losses whichwere there will vanish in long-run.
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Chapter 8
Perfect Competition
How Markets Work
Firm Behavior and the Organization of Industry
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so the key thing to remember in this problem is that perfectly competitive firms are priced acres, and because they're priced acres, they follow whatever the market price is. When these firms are making a loss right there, total revenue is less than their total cost. This year is a loss. Ah, firms will start to drop out in the corn quote long run. As soon as they can liquidate everything, they will drop out, and when they drop out, the supply curve will shift to the left so the supply curve over here will shift to the left. And now we have a new price, given you price a new equilibrium price, this new equilibrium price could be equal will be equal to, um wherever there is no economic profits where there's zero economic profits or lost.
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