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ECN 104 Chapter Notes - Chapter 9: Creative Destruction, Market Power, Economic Surplus

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viridiancrow801
11 May 2016
School
Ryerson University
Department
Economics
Course
ECN 104
Professor
Thomas Barbiero

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Document Summary

9. 1 the long run versus the short run in perfect competition. 9. 3 long-run supply for constant-cost, increasing-cost, and decreasing-cost. The long-run supply curve is horizontal for a constant-cost industry, upward sloping for an increasing-cost industry, and downward sloping for a decreasing-cost industry. The long-run equality of price and marginal cost implies that resources will be allocated in accordance with consumer tastes: allocative efficiency will occur. Chapter 9-perfect competition in the long run: in the market, the combined amount of consumer surplus and producer surplus will be at a maximum. The competitive price system will reallocate resources in response to a change in consumer tastes, in technology, or in factor supplies and will thereby maintain allocative efficiency over time. Long-run supply curve-a curve that shows the prices at which a purely competitive industry will make various quantities of the product available in the long run.

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Related Questions

4 In a perfectly competitive industry that is in a long-run equilibrium there is a permanent decrease in demand. Initially, in the short-run, this demand decrease brings a lower market price, A. economic profit to firms and entry of firms into the industry. B. economic loss to firms and exit of firms from the industry. C. normal profit to firms and no change in the number of firms in the industry. D. economic profit to firms and exit of firms from the industry. E. economic loss to firms and entry of firms into the industry.

What determines the entry and exit of firms in a perfectly competitive industry in the long run? In a perfectly competitive industry in the long run,

A. new firms cannot enter the market due to barriers but existing firms will exit if they are experiencing losses.

B. new firms will enter if market demand exceeds market supply and existing firms will exit if market supply exceeds market demand.

c. new firms will enter if existing firms are making a profit and existing firms will exit if they are breaking even or experiencing losses.

D. new firms will enter if existing firms are making a profit and existing firms will exit if they are experiencing losses.

E. new firms will enter if the price is above the shutdown point and existing firms will exit if the price is below the shutdown point.

 

If a typical firm in a perfectly competitive industry is incurring losses, then

  1. some firms will exit in the long run, causing market supply to decrease and market price to fall increasing losses for the remaining firms.
  2. some firms will enter in the long run, causing market supply to increase and market price to rise increasing profit for all firms.
  3. all firms will continue to lose money
  4. some firms will exit in the long run, causing market supply to decrease and market price to rise increasing profits for the remaining firms.