ECON 310 Lecture 8: l310x8
Document Summary
Lecture 8 price determination in a competitive industry: introduction. We have a rough idea of how the demand curve and the supply curve determine the equilibrium price and equilibrium quantity. We now want to see how the entry and exit of firms into the market occurs and how this results in a long-run price equal to the lowest point on the average cost curve. Short run industry equilibrium : no producer can change the amount of the fixed factor of production, only firms that are currently employing the fixed factor of production can produce. This means that there is no entry of firms into an industry in the short-run. Key idea -- when there are positive profits, more firms will enter an industry. This will shift the supply curve out, the price and profits per firm will fall. This will occur until all firms are earning zero (or the fair rate of) profit.
