Anonymous asked in Social ScienceEconomics · 1 month ago

Econ question? ?

What is an “Exit” and a “Shutdown” for a firm under Perfect Competition. Describe the difference between the two concepts.

This is what I have so far, any input is appreciated! I just don't know the difference between the two concepts 

An exit for a firm under perfect competition can be described as a firm that regularly cannot make money, meaning that the business has failed. When a firm is experiencing losses, it has to decide whether or not they should keep producing or not.

3 Answers

  • JuanB
    Lv 7
    1 month ago
    Favorite Answer

    Shutdown should really be described as "temporary shutdown" if it is an assumption.  Add temporary in your head and you get the idea.  eg:  restaurants shut down with COVID and laid employees off.  Still own the business though and hope to open when things get better.

    Exit is definitely completely no longer in the business.  examples.  Bankruptcy, or use to own a restaurant, now own a hotel, or owned a restaurant and now work for somebody else.

  • 1 month ago

    It is funny to me how capitalist econ schools still pretend like perfect competition is a thing or even relevant to modern capitalism.

  • Oiy
    Lv 6
    1 month ago

    The firm will shut down in the short term if the variable cost cannot cover the fixed cost. But the firm will exit in the long run if the long run average cost cannot reach the lowest point of the industry. The higher cost firm cannot compete, and must exit the market.

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