Answer to Question #303720 in Microeconomics for Baddest

Question

What is the likelihood that firms would

enter the market in the short-run? Use Covid 19 as a market condition to explain the likelihood and further explain an exit strategy if one exists.

Answer 1

The distinction between the short and long run is difficult to draw exactly. It changes depending on the business and economic circumstances like COVID-19 crisis. The distinction between the short run and the long run is thus more technical: in the short run, firms cannot change the use of fixed inputs. Profits are a red cape that motivates enterprises to charge in a competitive market. If a company is profitable in the short term, it is more likely to expand current factories or establish new ones. New businesses may also begin production. Entry occurs when new enterprises enter the industry as a result of higher industry earnings.

Businesses exit because of the gloomy losses, especially due to COVID-19 economic crisis. If a company is losing money in the short term, it will either continue to operate or close down, depending on whether its revenues meet its variable costs. However, in the long run, businesses that are losing money will shut down at least portion of their operations, and some will stop producing completely. Exit refers to the long-term process of reducing production in response to a consistent pattern of losses.