ECON 101 Lecture Notes - Lecture 16: Longrun, Market Power, Natural Monopoly

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rosebutterfly172

22 Aug 2020

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Document Summary

Short-run; market supply with fixed number of firms: Long-run; market supply with entry and exit: inc. quantity supplied dec. in price and profits. As long as price is above avc the firms marginal cost curve= its supply curve. Output supplied= total of output by individual firms. Assume; same technology, same market for inputs, therefore same cost curves. Profitability within the market = incentive to enter expand number of firms . Losses within the market = incentive to exit reduce number of firms dec. Profit = (p-atc) x q 0 operating profit when price = atc. Free entry and exit means price/mr = atc. In the long-run a free entry and exit market must be operating at its efficient scale quantity supplied inc. price and profits. Shift in demand in the short and long run: Different effects in short-run vs. long run. Entry and exist can cause long-run supply to be perfectly elastic.

Related Questions

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.

pinkwombat37

1. A firm that is a pure competitor has P > ATC and P > MC on the output (Q) it is presently producing and selling. Is this firm maximizing its profits? If not, which direction should it change its output if it wants to maximize its total profit?

2. Is a pure competitor in short-run or long-run equilibrium if it has P=MC=ATC? Explain.

3. There is free entry in the model of pure competition. Assuming that P > ATC for a vast number of firms producing a standardized product for a given market, what will happen to market supply as the consequence? What will happen to the market price (P) of the product these firms are producing?

4. Firms in the pure competition have horizontal demand functions. (The market determines product price, so firms in this competitive market are price takers.) Do firms in this model have to lower prices if they want to sell more output? Why or why not?