Regardless of whether the market price in the short run results in economic profit， normal profit， or a loss for competing firms， economic theory states that in the long run， the market price will settle at the point where these firms carn a normal profit.This is because over a long period of time， prices that enable firms to earn above—nor—mal profit would induce other firms to enter the market， and prices below the normal level would cause firms to leave the market.We just completed a discussion of the ra—tionale for a firm's operating at a loss in the short run.However， in the long run， we as—sume firms that are losing money would have to seriously consider leaving the market even if they have positive contribution margins.Recall that in the long run， firms have the ume to vary their fixed factors of production.This means that they would have suf.ficient time to Iiquidate the fixed assets that account for their fixed costs.
We discussed the long—run adjustment process of entering and exiting firms in Chapter 3.The entry of firms shifts the supply curve to the right， driving down market price.The exiting of firms shifts the supply curve to the left， placing upward pressure on market price.A firm's motivation to go into or get out of the market can now be examined in greater detail.There is only one price at which firms neither enter nor leave the market.This， of course， is the price that results in normal profits.The long—run process of entering and exiting firms is illustrated in Figure 8.8.
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