[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

computer-aided design and manufacturing, have made it possible for many companies
to change what they are producing more rapidly, and thus have reduced the
length of the long run and made supply curves more elastic than they had been in the
past.
Wrap-Up
ADJUSTMENTS IN THE SHORT RUN AND THE
LONG RUN
In the very short run, firms may be unable to adjust production at all; only the price
changes.
In the short run, firms may be able to hire more labor and adjust other variable
inputs.
In the long run, firms may be able to buy more machines, and firms may decide to
enter or to exit.
The times required for these adjustments may vary from industry to industry.
Accounting Profits and
Economic Profits
This chapter has shown how firms enter and exit markets in pursuit of profits. The
result of this process is that competition among firms drives profits to zero—in an
apparent contradiction of the basic competitive model. If firms are profit maximizers,
as we learned in Chapter 6, why would they ever choose to produce when there
are no profits to be made? Moreover, how can it be true that profits are zero when
firms in the real world routinely report making profits?
The answer to these questions is that accountants and economists think about
profits differently in two important respects. The first is that economists take opportunity
costs into account. The second has to do with the economic concept of rent.
Both deserve a closer look.
OPPORTUNITY COSTS
To begin to see how opportunity costs affect the economist’s view of profits, consider
a small firm in which the owner has invested $100,000. Assume the owner
receives a small salary and devotes sixty hours a week to running the enterprise.
An economist would argue that the owner ought to calculate his opportunity costs
related to his investment of time and money into the business. The opportunity cost
of his time is the best wage available to him if he worked sixty hours a week at an
alternate job. The opportunity cost of his capital is the return that the $100,000
166 ∂ CHAPTER 7 THE COMPETITIVE FIRM