Explain how the long run differs from the short run in pure competition

In long run, the factors of production are perfectly mobile.

This means that the firm can easily repurpose its capital in some more productive or more profitable production.

The biggest difference between the short run and the long run is the elasticity of supply.

Because all the factors are mobile, the firms can easily leave the market if they do not make a profit, or some other firms can enter the market if there is still profit to be made.

This makes the supply curve more elastic in contrast to the one from the short run which is perfectly unelastic (it is vertical on the S&D graph)

The difference between the long run and the short run in a purely competitive market model is as follows:

1. One of the characteristics of pure competition is the freedom of entry and exit of firms. But it can only take place in the long run as the firm becomes capable of expanding or contracting its operations. Thus the number of firms may fluctuate. In the short run, the number of firms is fixed. Firms may shut down their operations temporarily. Even if a firm wants to permanently shut down its operations, the process of liquidation of the business takes time, and thus it is not possible for a firm to leave the industry in the short run.
2. Since a purely competitive firm can expand or contract in the long run, the firm may earn economic profit or losses in the long run. In the case of economic profits, more firms would be attracted to the industry due to high profitability leading to an increase in the number of firms. In case of losses, the firms would start leaving the industry, leading to a fall in the number of firms. In the short run, the firm’s capacity in terms of men and machines remains constant. Thus a firm may earn normal profit or losses.
3. Due to increased capacity, in the long run, the output of the industry increases while in the short run, the output is constant and limited.

This assignment requests us to compare perfect competition in the long run and the short run.