Why can't firms enter a market under perfect competition in the short run?

My revision guide says that in the short run new firms can't enter the market as in the short run at least one factor is fixed.
The book is talking about how it is possible for firms to make abnormal profit in the short run but in the long run, new firms will enter the market...
I don't understand how having at least one fixed factor of production prevents new firms from entering the market. Doesn't the fact that there is complete freedom of entry allow new firms to enter in the short run as well as the long run?

Thanks in advance.

Reply 1

salmonman123

11

Might be referring to how in practice in contestable markets firms will still operate at normal profits instead of abnormal profit in the short run to avoid potential competition from entering the market and Hit and run competition. If theres no Abnormal profit then there is low/ no incentive for firms to enter the market in the first place. haven't heard anything of firms not entering because of fixed factors however. :confused:

Also don't take what I said as 100% fact, I'm not 100% sure but it's just a guess.

What Exam board are you with? I'm with AQA

OP

I'm with OCR

I haven't done this topic for 10 years but iirc, the fixed factor of production is a huge cost for new business eg machinery. The original business make abnormal profit due to lack of competition but if a new business pays the cost for this factor of production then they are in if for the long term. A short term business cannot pay this price and turnover a profit then leave. Just doesn't work

Reply 4

shakewell

OP

1

Original post by Guru Jason

I haven't done this topic for 10 years but iirc, the fixed factor of production is a huge cost for new business eg machinery. The original business make abnormal profit due to lack of competition but if a new business pays the cost for this factor of production then they are in if for the long term. A short term business cannot pay this price and turnover a profit then leave. Just doesn't work

Thanks that makes sense!

Reply 5

Devank123345

1

For firms to exit the market, they must reduce their ownership of FOPs. This cannot be possible in the short run, as the inputs are fixed — they must be variable for the firms to reduce them. On the other hand, firms planning to enter the market must own FOPs. If inputs are fixed, then it would be difficult for the firm to enter. Inputs can only change in the long run; therefore, in the short run firms cannot enter or exit the market.

Why can't firms enter a market under perfect competition in the short run?

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