EC 301 Study Guide - Midterm Guide: Takers, Vacuum Cleaner, Deadweight Loss
Document Summary
In a perfectly competitive industry, if a firm is incurring losses, then it might choose to produce in the short run because. Price is greater than average variable cost, resulting in smaller losses than would result from shutting down. In long-run equilibrium, all firms in the industry earn zero economic profit. Firms would enter an industry if profit will eventually be zero because zero economic profit is a normal rate of return that includes the opportunity cost of resources used in production. At the beginning of the twentieth century, there were many small american automobile manufacturers. At the end of the century, there were only three large ones. Suppose that this situation is not the result of lax federal enforcement of antimonopoly laws. How do you explain the decrease in the number of manufacturers? (hint: what is the inherent cost structure of the automobile industry?) An increase in the demand for movies also increases the salaries of actors and actresses.
