ECN 104 Lecture Notes - Lecture 10: Demand Curve, Profit Maximization, Longrun

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apricottoad69

3 Mar 2017

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10: the long run versus the short run in perfect competition. The only long run adjustment we consider. All firms in the industry have identical costs: constant-cost industry. Entry and exit do not affect resource prices. Profits attract firms from less profitable industries and losses cause them to leave the unprofitable industry to find another more profitable one. This reflects the supply determinant, a change in the number of sellers. The graphs below show temporary profits and the re-establishment of long-run equilibrium in (a) a representative firm and (b) the industry. A favorable shift in demand (d1 to d2) will upset the original industry equilibrium and produce economic profits. As a result, those profits will entice new firms to enter the industry, increasing supply (s1 to s2) and lowering product price until economic profits are. In other words, an increase in demand temporarily raises price. Temporary profits and the re-establishment of long-run equilibrium in a representative firm and the.

Related Questions

All of the following statements are true about pure competition in the long-run, except

a) The long-run adjustment in pure competition happens through shifts in the industry demand curve.

b) Entry and exit of firms will shift the demand curve facing the representative firm in the industry.

c) The long-run adjustment in pure competition happens through shifts in the industry supply curve.

d) Entry and exit of firms will push the economic profits of firms in the industry towards zero.

peargoose253

Suppose you are given the following information about an industry:

Qd = 6500 - 100P Market Demand

Qs = 1200P Market Supply

Assume further that a representative firm's cost function is::

C(q)= 722 + q^2 / 200 and Marginal cost of

MC(q) = q / 100

Assume further that firms are identical and the market is characterized by perfect competition.

A) Find the equilibrium price and quantity and the output the firm will produce in the short run. What is the profit of each firm?

B) Would you expect entry or exit to this industry in the long run? Explain. What effect would such entry/exit have on the market equilibrium?

C) What is the lowest price the firms may survive in the long-run? Is profit positive, negative, or zero at that price?

D) What is the lowest price the firm may sell in the short-run? Is profit positive, negative, or zero at that price?

pearferret188

Match the following.

constant-cost industry	A market structure in which a large number of firms sell a homogenous product or service with no restrictions on entry or exit and each firm is a price-taker.
increasing-cost industry	The demand facing a price-taking firm.
long-run equilibrium	A firm produces zero output but must still pay its fixed costs.
marginal revenue product	Price below which a firm shuts down in the short run.
perfect competition	All firms produce where price equals long-run marginal cost, and economic profits are zero.
perfectly elastic demand	Industry in which input prices rise as all firms in the industry expand output.
shut down	Industry in which input prices remain constant as all firms in the industry expand output.
the shut-down price	The additional revenue earned by hiring one more unit of a variable input.

viridianhare336

ECN 104 Lecture Notes - Lecture 10: Demand Curve, Profit Maximization, Longrun

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