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Long-Run Market Dynamics of Entry, Exit, and Capacity Change
In the long run, firms can adjust factors that are fixed in the short run, leading to dynamic changes in market structure. These adjustments are driven by profitability. If firms are earning economic rents, they may choose to expand their production capacity, and the prospect of these rents can also attract new firms to enter the market. Conversely, if firms are experiencing losses in a short-run equilibrium, they may decide to exit the market entirely. These decisions to enter, exit, or change capacity are the key drivers of how a market equilibrium evolves over the long term.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.8 Supply and demand: Markets with many buyers and sellers - The Economy 2.0 Microeconomics @ CORE Econ
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