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ECO101H1 Lecture Notes - Lecture 8: Monopoly Profit, Monopoly Price, Organic Food

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School
UTSG
Department
Economics
Course
ECO101H1
Professor
James Pesando

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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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Document Summary

Demand increases, market price increases (from to ) Case 1: new firms have identical cost schedules as existing firms. 10,000 old firms and 1,000 new firms earn zero economic profits. Long-run industry supply curve is horizontal (perfectly elastic) Case 2: the entry of 1,000 new firms results in higher wages and mc of all firms increase by [so atc of all firms increase by ] In the long run, p==[minimum] atc of all firms. Price falls from short-term level () as new firms enter industry, but only to . In eco100, we will focus only on case 1. 1: as shown by case 2, we need to track how [minimum] atc changes as new firms enter industry to identify long-run industry supply curve. Single seller (of product with no close substitutes) Barriers to entry: legal barriers (legal monopoly) *one pipeline is efficient, the government won"t make 100 pipelines.

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Related Questions

1. In a constant cost industry, P = AC = $20. Which sequence of events follows an increase in demand?

a. P = AC, firms make no economic profit, existing firms leave output unchanged, new firms enter the industry, profits remain normal, P = AC = $20.

b. P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts left, price falls until profits return to $0.

c. P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits return to $0.

d. P < AC, firms suffer an economic loss, existing firms reduce output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits exceed $0.

2. Describe the supply curve of a constant cost industry.

a. Upward sloping

b. Flat

c. Downward sloping, then upward sloping

d. Downward sloping

3. At the profit-maximizing output level P = MC, if P > AC then firms can earn an above-normal profit, causing entry into the industry. True or false?

4. In a competitive market, the amount of a good that is produced is such that social surplus is:

a. Minimized

b. Maximized

c. Zero

d. Hidden

In a competitive market with identical firms,

a.; free entry and free exit into the market require that firms earn zero economic profit in the long run even though they may be able to earn economic profits in the short run.

b. firms can earn economic profits in the long run if the long-run supply curve is upward sloping

c. an increase in demand in the short run will result in a new price above the minimum of the average total cost allowing the firms to earn a positive economic profit in both the short run and the long run 

d. firms can earn a positive economic profit in either the short run or the long run.

In a competitive market with identical firms:

a. free entry and exit into the market require that firms earn zero economic profit in the long-run even though they may be able to earn positive economic profit in the short-run. 

b. firms can earn positive economic profit in the long-run if the long-run market supply curve is upward-sloping. 

c. an increase in demand in the short-run will result in a new price above the minimum average total cost, allowing firms to earn a positive economic profit in both the short-run and long-run. 

d. firms cannot earn positive economic profit in either the short-run or long-run.