Question

Explain why the profit level in the long run must be at least as high as the profit level in the short run

Answer 1

In the short run, the graph looks like just like the graph for a monopoly, with the firm making an economic profit. In the long run, however, firms will enter the industry and cause the demand curve to shift to the left, which results in no economic profit.

In the short run, the number of firms is fixed. Depending on its costs and revenue, a firm might be making large profits, small profits, no profits or a loss; and in the short run, it may continue to do so.

The profit level in the long run must be at least as high as the profit level in the short run

In the long run, however, the level of profits affects entry and exit form the industry. if profits are high, new firms will be attracted into the industry, whereas if losses are being made, firms will leave. Therefore their is always profit level is high as compare to short run.